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.
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)”
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.
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.
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.
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.
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!