JPM's Earnings Created the Perfect Opportunity to Buy

Introduction: JPM is undervalued and a solid investment, and their recent earnings dip might just make for a great buying opportunity. In this analysis, we are going to look at JPM's current valuation, recent earnings, and 7 key financial ratios. This is a fairly long analysis but if you're thinking of investing in JPM then you should have a decent understanding of why you decided to make this investment. Anyway, enough with the intro, let's jump into the analysis. JPM Summary: If you're not familiar with JPM then here is a quick summary, feel free to jump past this part. “JPMorgan Chase & Co. operates as a financial services company worldwide. It operates through four segments: Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB)” JPM Stock Recent Volume Comparison I'm usually more of a fundamental investor but I also think there are some technical indicators that help provide additional; content when making an investment, which is why we will look at recent volume. Comparing JPM's most recent volume to their average monthly volume can help us derive some valuable insights. Firstly, JPM's average volume over the past 2 trading days is sitting around 12.72M, which is higher (lower) than their average monthly trading volume of 16.91M. However, today's volume is currently near 16M with 4 hours left in the market. This high volume is of course due to their earnings release. This higher recent volume is indicative of traders actively betting on price increases/decreases in the JPM stock and increased awareness around the JPM stock. If this high relative volume is paired with a break of resistance the upwards price movement is typically more significant. Alternatively, if this high relative volume is paired with a break of support the downwards price movement is typically more significant. JPM Valuation and Stock Rating Understanding the valuation of a stock is a useful check to see if the investment fundamentals are sound. I pulled the valuation and stock rating for a quick view to see if JPM is considered undervalued or overvalued. Analysts of JPM have given an overall rating of 5, on a rating scale between 1 and 5, with 1 being the worst and 5 being the best. This overall rating consists of 3 different ratings, PE, ROE and DCF which I'll get into below. PE Rating: Currently, analysts have given JPM a PE rating of 5. This is the highest ranking and implies that the JPM stock is currently undervalued. The PE rating factors in the trailing, current, and future PE Ratio of the JPM stock. In the case of JPM, analysts think that JPM is undervalued given their P/E ratios, relative to the average P/E ratio of their peers. ROE Rating: Currently, JPM has been given an ROE rating of 3 by analysts. This is an average score for a company's ROE rating. This indicates that JPM's ROE is both healthy and in line with the average ROE of thier peers/industry. JPM's ROE score of 3 implies that they are currently profitable but could be generating their profits in a more efficient manner.  DCF Rating: We have saved the best (and most influential) rating for last. JPM has been given a score of 5 based on the quality of their DCF model (and projections). The DCF model is very commonly used by investors to value securities and is the de facto measurement of a stocks value. As a result of this, a high level of importance is placed on the company's DCF models. With that being said, JPM's score of 5 is very good, implying the outlook for JPM is very positive, and their stock is currently undervalued. Based on these metrics we can see that JPM seems to be undervalued and a solid investment. Considering these core metrics look good, I would be likely to take a position in JPM. That being said, I want to look at some other metrics and factors. Recent and Upcoming JPM Earnings Some people like to “play” earnings, but I tend to look at historical and upcoming JPM earnings to analyze or re-analyze my investment. Typically, a beat will cause the price to jump, and a miss will lead to a drop, but we've seen a few cases recently where it's been the opposite. Either way, let's look at JPM Historically, JPM has beat their earnings 90% of the time. This track record is fantastic and allows us to assume that they will continue to beat estimates. Furthermore, their average earnings beat is 16.47%, which is a significant amount. JPM's most recent earnings release came on April 13 2022, in which JPM reported an EPS of $2.63, which was 2.85% worse than their EPS estimate of $2.71. Moving forward, we can expect JPM to beat their next earnings estimate of $2.76 by 16.47%, on July 14th, 2022. If this were the case JPM's EPS would be $3.13 which is 17.19% lower than their Q2 2021 EPS of $3.78. When forecasting a beat on their next earnings, we typically growth in a company's YoY EPS, however, in the case of JPM it was 17% lower. This could be due to the decrease in profitbaility due to the rise (and expected rises) in the interest rate. JPM Stock Key Ratio Analysis There are 5 main financial ratios that we are going to look at today. These ratios can help us to get a general idea of the financial health of the JPM stock before we choose to enter into (or add to) a position. These ratios can help us to understand the current state of JPMorgan Chase & Co.'s business, as well as what their future might look like. EPS: EPS is one of (if not) the most commonly used in finance. JPM's EPS is currently 8.89, which means that for every outstanding share of JPM they make $8.89 in net income (after tax). EPS figures can be manipulated by the company, as there are accounting practices that can be used to hide unfavourable expenses/figures, so don't look at this figure as the “be all end all” P/E Ratio: The P/E ratio is another very popular financial ratio that is used very commonly. This ratio is used in conjunction with EPS, as the P/E ratio is simply the price of the stock divided by its EPS. As a general rule of thumb (explained by Peter Lynch in his book “one up on wall street”), a company's P/E ratio should be roughly equal (or higher) to their growth rate. In the case of JPM, they have a P/E ratio of 10.64, while their EPS growth rate (3Y) is 22.53%. The fact that the EPS growth rate is higher than the P/E ratio is good, when considering these numbres are not similar. This may just be an indication that the banking industry as a whole is being undervalued. ROE: A company's ROE is the return a company can receive by projects/investments funded by their shareholder's equity (how well they can turn money into more money). A high ROE is typically favourable, unless it is unusually high, then you may have to do some further investigation. ROE's over 15% are considered to be good, and JPM's ROE is currently at 17.62%. This level is fantastic and very sustainable in the future. Debt-to-Equity: A company's Debt-to-Equity ratio shows us how much debt a company is carrying relative to the amount of shareholder's equity they have. By taking a quick look at this figure we can determine if a company's debt levels are potentially risky and need further investigation into. If a company's D/E ratio is above 2.5, we may want to analyze their debt to determine if they will be able to pay it all back (avoiding defaults). JPM's current D/E ratio is 11.96. Banks tend to carry a lot more debt than the average business due to the nature of their business, so further analysis on this topic may be beneficial. EV/EBIT: The EV/EBIT ratio is like the P/E ratio in the sense that they are measures of the value that you are receiving for purchasing a stock at its current market price. Using the EV/EBIT ratio (rather than the P/E ratio) is beneficial as it factors in the company's debt. A lower EV/EBIT ratio indicates that the stock is close to its fair value, and potentially has more intrinsic value than other stocks. Currently, JPM has an EV/EBIT ratio of 2.91, meaning that it will take 2.91 years in order for JPM to generate enough income to reach their current enterprise value. This is low in general terms, however when looking at average Financial Services EV/EBIT ratios this is quite normal and indicates JPM is close to their fair value. Why I Think JPM is Undervalued/Overvalued Overall, I think that the JPM stock is undervalued. This is due to JPM overall stock grade being ranked a 5, their 90% track record of beating earnings, and the fact that 4/5 key ratios are good (if not great). I think that all of these factors on their own are amazing, however when you look at them together and factor in the fact that their relative volume is higher than their average volume, it creates the perfect storm. Thanks for taking the time to read my analysis, please follow me for the latest investment insights and leave a comment if you have any questions or disagree with my thoughts - always open to a good discussion!

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JPM's Earnings Created the Perfect Opportunity to Buy

bullish

Introduction:

JPM is undervalued and a solid investment, and their recent earnings dip might just make for a great buying opportunity. In this analysis, we are going to look at JPM's current valuation, recent earnings, and 7 key financial ratios. This is a fairly long analysis but if you're thinking of investing in JPM then you should have a decent understanding of why you decided to make this investment. Anyway, enough with the intro, let's jump into the analysis.

JPM Summary:

If you're not familiar with JPM then here is a quick summary, feel free to jump past this part.

“JPMorgan Chase & Co. operates as a financial services company worldwide. It operates through four segments: Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB)”

JPM Stock Recent Volume Comparison

I'm usually more of a fundamental investor but I also think there are some technical indicators that help provide additional; content when making an investment, which is why we will look at recent volume.

Comparing JPM's most recent volume to their average monthly volume can help us derive some valuable insights. Firstly, JPM's average volume over the past 2 trading days is sitting around 12.72M, which is higher (lower) than their average monthly trading volume of 16.91M. However, today's volume is currently near 16M with 4 hours left in the market. This high volume is of course due to their earnings release.

This higher recent volume is indicative of traders actively betting on price increases/decreases in the JPM stock and increased awareness around the JPM stock. If this high relative volume is paired with a break of resistance the upwards price movement is typically more significant. Alternatively, if this high relative volume is paired with a break of support the downwards price movement is typically more significant.

JPM Valuation and Stock Rating

Understanding the valuation of a stock is a useful check to see if the investment fundamentals are sound. I pulled the valuation and stock rating for a quick view to see if JPM is considered undervalued or overvalued.

Analysts of JPM have given an overall rating of 5, on a rating scale between 1 and 5, with 1 being the worst and 5 being the best. This overall rating consists of 3 different ratings, PE, ROE and DCF which I'll get into below.

PE Rating: Currently, analysts have given JPM a PE rating of 5. This is the highest ranking and implies that the JPM stock is currently undervalued. The PE rating factors in the trailing, current, and future PE Ratio of the JPM stock. In the case of JPM, analysts think that JPM is undervalued given their P/E ratios, relative to the average P/E ratio of their peers.

ROE Rating: Currently, JPM has been given an ROE rating of 3 by analysts. This is an average score for a company's ROE rating. This indicates that JPM's ROE is both healthy and in line with the average ROE of thier peers/industry. JPM's ROE score of 3 implies that they are currently profitable but could be generating their profits in a more efficient manner.

DCF Rating: We have saved the best (and most influential) rating for last. JPM has been given a score of 5 based on the quality of their DCF model (and projections). The DCF model is very commonly used by investors to value securities and is the de facto measurement of a stocks value. As a result of this, a high level of importance is placed on the company's DCF models. With that being said, JPM's score of 5 is very good, implying the outlook for JPM is very positive, and their stock is currently undervalued.

Based on these metrics we can see that JPM seems to be undervalued and a solid investment. Considering these core metrics look good, I would be likely to take a position in JPM. That being said, I want to look at some other metrics and factors.

Recent and Upcoming JPM Earnings

Some people like to “play” earnings, but I tend to look at historical and upcoming JPM earnings to analyze or re-analyze my investment. Typically, a beat will cause the price to jump, and a miss will lead to a drop, but we've seen a few cases recently where it's been the opposite. Either way, let's look at JPM

Historically, JPM has beat their earnings 90% of the time. This track record is fantastic and allows us to assume that they will continue to beat estimates. Furthermore, their average earnings beat is 16.47%, which is a significant amount.

JPM's most recent earnings release came on April 13 2022, in which JPM reported an EPS of $2.63, which was 2.85% worse than their EPS estimate of $2.71.

Moving forward, we can expect JPM to beat their next earnings estimate of $2.76 by 16.47%, on July 14th, 2022. If this were the case JPM's EPS would be $3.13 which is 17.19% lower than their Q2 2021 EPS of $3.78. When forecasting a beat on their next earnings, we typically growth in a company's YoY EPS, however, in the case of JPM it was 17% lower. This could be due to the decrease in profitbaility due to the rise (and expected rises) in the interest rate.

JPM Stock Key Ratio Analysis

There are 5 main financial ratios that we are going to look at today. These ratios can help us to get a general idea of the financial health of the JPM stock before we choose to enter into (or add to) a position. These ratios can help us to understand the current state of JPMorgan Chase & Co.'s business, as well as what their future might look like.

  1. EPS: EPS is one of (if not) the most commonly used in finance. JPM's EPS is currently 8.89, which means that for every outstanding share of JPM they make $8.89 in net income (after tax). EPS figures can be manipulated by the company, as there are accounting practices that can be used to hide unfavourable expenses/figures, so don't look at this figure as the “be all end all”
  2. P/E Ratio: The P/E ratio is another very popular financial ratio that is used very commonly. This ratio is used in conjunction with EPS, as the P/E ratio is simply the price of the stock divided by its EPS. As a general rule of thumb (explained by Peter Lynch in his book “one up on wall street”), a company's P/E ratio should be roughly equal (or higher) to their growth rate. In the case of JPM, they have a P/E ratio of 10.64, while their EPS growth rate (3Y) is 22.53%. The fact that the EPS growth rate is higher than the P/E ratio is good, when considering these numbres are not similar. This may just be an indication that the banking industry as a whole is being undervalued.
  3. ROE: A company's ROE is the return a company can receive by projects/investments funded by their shareholder's equity (how well they can turn money into more money). A high ROE is typically favourable, unless it is unusually high, then you may have to do some further investigation. ROE's over 15% are considered to be good, and JPM's ROE is currently at 17.62%. This level is fantastic and very sustainable in the future.
  4. Debt-to-Equity: A company's Debt-to-Equity ratio shows us how much debt a company is carrying relative to the amount of shareholder's equity they have. By taking a quick look at this figure we can determine if a company's debt levels are potentially risky and need further investigation into. If a company's D/E ratio is above 2.5, we may want to analyze their debt to determine if they will be able to pay it all back (avoiding defaults). JPM's current D/E ratio is 11.96. Banks tend to carry a lot more debt than the average business due to the nature of their business, so further analysis on this topic may be beneficial.
  5. EV/EBIT: The EV/EBIT ratio is like the P/E ratio in the sense that they are measures of the value that you are receiving for purchasing a stock at its current market price. Using the EV/EBIT ratio (rather than the P/E ratio) is beneficial as it factors in the company's debt. A lower EV/EBIT ratio indicates that the stock is close to its fair value, and potentially has more intrinsic value than other stocks. Currently, JPM has an EV/EBIT ratio of 2.91, meaning that it will take 2.91 years in order for JPM to generate enough income to reach their current enterprise value. This is low in general terms, however when looking at average Financial Services EV/EBIT ratios this is quite normal and indicates JPM is close to their fair value.

Why I Think JPM is Undervalued/Overvalued

Overall, I think that the JPM stock is undervalued. This is due to JPM overall stock grade being ranked a 5, their 90% track record of beating earnings, and the fact that 4/5 key ratios are good (if not great). I think that all of these factors on their own are amazing, however when you look at them together and factor in the fact that their relative volume is higher than their average volume, it creates the perfect storm.

Thanks for taking the time to read my analysis, please follow me for the latest investment insights and leave a comment if you have any questions or disagree with my thoughts - always open to a good discussion!

read-time
7 min
147.17
Target Price
8/ 10
Confidence
2-6 Months
Timeframe
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Earnings Release
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News
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SEC
Filing
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Sentiment
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