Charles Schwab (SCHW): Is the Stock Still Undervalued After This Week’s Modest Pullback?

Charles Schwab (SCHW) shares have experienced a modest dip over the past week, with the stock easing by about 2%. Despite the pullback, Schwab’s longer-term performance and steady earnings growth remain areas of interest for investors.

See our latest analysis for Charles Schwab.

Schwab’s share price has cooled off slightly this week, but looking at the bigger picture, momentum remains strong, with a 24.54% share price return so far this year and an impressive 37.62% total shareholder return over the past 12 months. Investors continue to weigh short-term dips against long-term growth, as steady earnings and a robust five-year total return of 150.10% highlight Schwab’s underlying strength.

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With shares trading nearly 19% below analyst price targets but after such robust multi-year gains, the next question is whether Schwab remains undervalued or if the market has already accounted for its future growth potential.

Most Popular Narrative: 15.1% Undervalued

Compared to the current share price, the most widely followed narrative implies Charles Schwab is trading below what analysts believe is justified. With the narrative's fair value set notably above last close, here is a closer look at what is fueling that optimism.

• Ongoing digital transformation and operational enhancements (e.g., AI-powered efficiency and automation) are expected to sustainably reduce cost-to-serve and improve client experience at scale, which could underpin long-term operating margin expansion.

Read the complete narrative.

Want to know what’s powering that bold target? There is a set of ambitious revenue, earnings, and margin assumptions included, plus a shift in what Schwab’s future earnings could mean for its share price. Missing the details could mean missing the bigger story.

Result: Fair Value of $108.37 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, rising competition from digital-first platforms and potential shifts in interest rates could present challenges to Schwab's continued growth and margin expansion.

Find out about the key risks to this Charles Schwab narrative.

Another View: What If the Market Knows Something?

Our SWS DCF model takes a different approach and estimates Charles Schwab's fair value at $78.57, which is well below the current share price. While analysts see strong future growth supporting a higher price, this model suggests the stock may be overvalued if those assumptions do not play out. Which view will prove right as forecasts meet reality?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Charles Schwab for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Charles Schwab Narrative

If you have your own perspective or want to dig into the figures yourself, you can craft your personal Schwab narrative in just a few minutes. Do it your way

A great starting point for your Charles Schwab research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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