State Street has been on fire lately. In the past six months alone, the company’s stock price has rocketed 47%, reaching $181.17 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now still a good time to buy STT? Or are investors being too optimistic? Find out in our full research report, it’s free.
Why Does STT Stock Spark Debate?
Dating back to 1792 when Boston's Long Wharf was the center of global shipping and trade, State Street (NYSE: STT) provides custody, investment management, and other financial services to institutional investors like pension funds, asset managers, and central banks worldwide.
Two Positive Attributes:
1. EPS Increasing Steadily
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
State Street’s EPS grew at 13.2% compounded annual growth rate over the last five years, higher than its 5.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
2. Previous Growth Initiatives Are Paying Off
Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of financial firm funding. Financial firms maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.
Over the last five years, State Street has averaged an ROE of 10.4%, respectable for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This shows State Street has a narrow competitive moat.
One Reason to Be Careful:
Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.
Unfortunately, State Street’s 5.3% annualized revenue growth over the last five years was tepid. This wasn’t a great result compared to the rest of the financials sector, but there are still things to like about State Street.
Final Judgment
State Street has huge potential even though it has some open questions, and after the recent surge, the stock trades at 12.6× forward P/E (or $181.17 per share). Is now a good time to buy despite the apparent froth? See for yourself in our comprehensive research report, it’s free.
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