TD Ameritrade Holding Corporation (AMTD) didn't experience a spectacular start to its new fiscal year. The broker, which competes with Charles Schwab (SCHW) and E*Trade Financial Corporation (ETFC), was hampered by a decline in trading activities.
According to the press release, revenues increased a modest 2% from the year-ago period. On a sequential basis, the top line actually contracted. Net income decreased 26% to 23 cents per share. Earnings.com indicates an expectation of 26 cents per share. Margins and profitability metrics unfortunately were down across the board.
There's no way to sugarcoat the fact that TD Ameritrade had a rough time delivering an acceptable quarter to shareholders. As management mentioned at the beginning of the release, trading volumes are off their previous record highs, and the interest-rate condition is not making things simple. Better expense control is required at this juncture.
The broker is doing its best to gather assets to create a strong fundamental position for purposes of exploiting future opportunities. Indeed, when you think about it, a broker's most important function is in growing its client base and funds under management. When the economy improves, the business can then take advantage of its expanded portfolio of customers.
For now, I don't see any reason to buy the stock. I would absolutely want a decent pullback on this one before even thinking about starting a position. Like I stated, the bull rally isn't as young as it used to be, and I can't be sure that a correction isn't lurking around the corner. A correction could certainly sour the prospects for TD Ameritrade's shares in a hurry.
One interesting angle to the story was pointed out in this piece over at DailyFinance. Will execs ever do a transaction with E*Trade? The company wouldn't say what's on its mind in that regard. I'm not interested in putting money down on speculation that these two will merge, but I will say that consolidation is the trend in the broker space, so it wouldn't surprise me if TD Ameritrade makes a deal with some entity within the next couple years.
Disclosure: I don't own any company mentioned; positions can change without notice.