LPLA Stock Forecast: Strong Growth Stock and 5 Reasons to Buy
This LPLA Stock Forecast article was written by Brady Kessler – Financial Analyst at I Know First
Summary:
- Over the past 2 years shares of LPL Finance have risen 35.1%
- Earnings have soared 37.6% over the last 3-5 years which is well above the industry average of 15.9%
- LPL Finance’s management have effectively utilized their assets
- With economic situation worsening, LPL will be able to meet debt obligations
LPL Finance Holdings is a 30+ year old finance-based company that focuses on helping financial professionals build a competitive business while they serve their clients’ best interests. LPL Finance supports individual financial planners all the way to financial institutions as well as from local advisory teams to large scale RIA firms. The company provides their technology and their own service advisors to clients through cloud-based and web-accessible platforms. LPL Finance is publicly traded on the NASDAQ by the ticker LPLA.
Analysis of Graphs Above
The graphs above show a steady and slow growth up until March then a sudden fast increase after the dip due to the Q1 earnings call. The earnings call showed a 10% increase from the prior year Q1 EPS, improved revenues of 21$ from last year, increased expenses by 23% to 1.89 billion dollars, and strong positioning on their balance sheet.
Yearly Earnings Growth Shows Lots of Promise for Future
The finance industry had an average earnings growth of 15.9% over with past 5 years which is relatively very good. Most companies’ earnings were increasing at a steady rate, however, LPL reported earnings in this time frame of 37.6%. With the rapid and strong growth LPL Finance is sure to carry this momentum onward to their next earnings report soon. This is positive news that investors can get behind. Finding a growth stock is always hard due to their somewhat high risk and volatility, but LPL Finance has shown constant growth and seems to be a safer pick for your portfolio right now over other growth stocks. Below is a graph of LPL’s increasing EPS and projected EPS from the Nasdaq website. As one can see from the graph, there is constant growth projected and achieved in the last year and more.
The earnings per share are something many investors tend to look for to find a profitable stock to add to their portfolio and LPL has a very solid historical growth rate of 27.8% over the last five years. This number is not eye popping, but according to their reports they are expected to have a projected growth of their EPS by 40.3% this year, which is well above the industry average of only 5.8% of growth. According to Yahoo Finance, the EPS is expected to grow due to the high and increasing market volatility that LPL will benefit from. In the graph above, there seem to be some stagnant quarters, however, those were the years of the company prior to their many new asset acquisitions and when the company was a stable stock with not a lot of growth or decline. Below is a table that shows LPL’s projected EPS range estimates for the upcoming years and these numbers should be very appealing to investors because the EPS is projected to increase drastically over the years.
Asset Utilization Ratio Impresses Investors
Although overlooked by investors, the asset utilization ratio is a key component to following the strength of a growth stock such as LPLA. An asset utilization ratio is a key metric that depicts how efficiently and effectively a firm is using their assets to generate sales. The asset utilization ratio can also be found or seen as the sales to total assets ratio. As of the last quarter, LPLA has an asset utilization rate of 1.05 and this means that for every dollar in assets, LPL gets $1.05 in sales. To put this ratio into perspective, the finance industry average is only 0.17. Comparing the 1.05 rate to the 0.17 shows the efficiency of LPL and their assets. To be more specific, according to data from CSIMarket, the asset utilization ratio of LPL is much better off than those of their strong close competitors. For example, Goldman Sachs is a huge competitor of LPL Financial and their asset utilization ratio is only 0.04. Another example of a close competitor whose asset utilization ratio is worse than LPL is BGC Partners. BGC Partners’ asset utilization ratio is 0.42 which is still not as good as LPL. Based on the company’s asset utilization rate, one can predict the increase and growth of their sales. The predicted growth of their sales is projected to be around 18.7% which is exponentially higher than the finance industry average of 0.0%.
Tanking Economy is No Major Threat for LPLA
The year 2022 has not been the so-called best year for the market. The economy has been in a downwards trend for months now and just recently, the S&P 500 just hit a new 2022 low. This year has experienced one of the worst starts to a year in history. With uncertainty high, investors continue to unload and sell their holdings. The S&P started off hot in the new year and hit a record high in January only to fall 20% since then. Along with the S&P, the Nasdaq has been in a bear market and is down 30% since November. Because of all this uncertainty and high stress towards investors, there has been an immense amount of selling pressure.
Even with these charts jumping out the screen to the investor’s eyes, they can be assured from LPL that this will not cause their stock to plummet with the rest of the economy. LPL Financial can assure this based off their strong positioning on their balance sheet. As of March 31st, the total assets of LPL were down 7.77 billion which is equal to 3%. Although their assets were down, their cash and cash equivalents totaled $1.01 billion, which is significantly higher than the end of their prior quarter. Moreover, their balance sheet showed that the total stockholders’ equity was $1.74 billion and up 4% from the prior quarter. All these statistics show the solid liquidity of the company, and their liquidity proves that even with their debt obligations during this bear market, they should be able to meet the debt obligations with little to no damage.
Those debt obligations seem large at first because they have a total of 2.7 billion dollars in debt with a high interest rate of 3.777% but compared to the others in the industry and their main competitors, they are right in the same area as their competitors. Competitors such as Morgan Stanley, Charles Schwab, and even Goldman Sachs are all in a lot of debt and their debts have only been increasing. For example, in the last quarter, Morgan Stanley reported an increase of about 9.5 billion in debts from their last quarter to their most recent quarter. To top all of that, Morgan Stanley is in debt of a total of about 695 billion dollars.
What Does All of This Mean? It Means Buy
LPLA stock is a buy in my books. LPL Financial checks off all the boxes to be a clear strong and relatively safer growth stock to add to one’s portfolio. LPLA has a share price of around $180 dollars per share now and I believe there is no bad price to buy this company at right now. I believe even with the worsening economy LPL will manage to grow and make you money. If LPL can grow and make money during this bear market, then this stock’s potential for a bullish market is through the roof. When buying this stock, do not be afraid to hold on even if the price drops because in the end, it is a growth stock which means it will be volatile at some points during the year. The company has great management and have been producing great numbers and statistics as I have listed in the paragraphs above. I trust the management of the company and they are producing, and I believe LPL is a strong company that will continue to grow and become larger as the years come by.
Comparing My Thoughts to Professional Analysts
According to many analysts from different websites, almost all say to buy, and a few say to hold onto shares. According to Tip Ranks they have a bullish LPLA stock forecast and say the price per share to have a low of $219, an average of $241, and a potential high of $271 by the end of 12 months.
Predictions Backed by I Know First Algorithms
Above is our algorithm showing the bullish LPLA stock forecast for 1 month, 3 months and 1 year. Earlier, I stated that I believe LPLA is a good buy and a good hold. I believe that LPL is a strong growth stock that should be added to the portfolio, and based off our algorithm, it seems to agree with my statement. The algorithm is confident that LPL will grow in the short and medium term and the algorithm is very confident LPL will strive in the long term. I stated basically the same thing as the algorithm above and my thoughts and the algorithm seem to be in sync. I believe based off the statistics, facts, and the algorithm that LPL Financial is definitely a strong buy and should be added to one’s portfolio.
Past Success with LPLA Stock Forecast
I Know First has been bullish on their LPLA stock forecast in the past. On September 16th, 2020 the I Know First algorithm issued a forecast for LPLA stock price and recommended LPLA as one of the best stocks to buy. The Deep-Learning-driven LPLA long term stock prediction was successful on a one year horizon resulting in a 78.98% return.
LPLA Historical Price
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