LPL Financial (LPLA)

Independent financial services firm LPL Financial (NASDAQ:LPLA) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 48.4% year on year to $4.55 billion. Its non-GAAP profit of $5.20 per share was 15.8% above analysts’ consensus estimates.

Company Overview

As the nation's largest independent broker-dealer with no proprietary products of its own, LPL Financial (NASDAQ:LPLA) provides technology, compliance, and business support services to independent financial advisors and institutions who manage investments for retail clients.

Investment banks and brokerages facilitate capital raises, mergers and acquisitions, and securities trading. The sector benefits from corporate activity during economic expansion, increased retail trading participation, and advisory opportunities in emerging sectors. Headwinds include economic cycle vulnerability affecting deal flow, compressed trading commissions due to electronic platforms, and regulatory capital requirements constraining certain higher-risk activities.

LPL Financial competes with other independent broker-dealers like Raymond James Financial (NYSE:RJF), Ameriprise Financial (NYSE:AMP), and Cetera Financial Group (private), as well as with traditional wirehouses such as Morgan Stanley (NYSE:MS), Merrill Lynch (part of Bank of America, NYSE:BAC), and UBS (NYSE:UBS).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, LPL Financial’s 22% annualized revenue growth over the last five years was exceptional. Its growth surpassed the average financials company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. LPL Financial’s annualized revenue growth of 26.2% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, LPL Financial reported magnificent year-on-year revenue growth of 48.4%, and its $4.55 billion of revenue beat Wall Street’s estimates by 5%.

Assets Under Management (AUM) is the cornerstone of a financial firm's investment division, representing all client capital under its stewardship. Management fees on this AUM create reliable, recurring revenue that maintains stability even when investment performance struggles, though prolonged poor returns can eventually affect asset retention and growth.

LPL Financial’s AUM has grown at an annual rate of 20.7% over the last five years, better than the broader financials industry but slower than its total revenue. When analyzing LPL Financial’s AUM over the last two years, we can see that growth accelerated to 27.6% annually. Fundraising or short-term investment performance were net contributors for the company over this shorter period since assets grew faster than total revenue. Keep in mind that asset growth can be erratic and seasonal, so we don't rely on it too heavily for our business quality analysis.

In Q3, LPL Financial’s AUM was $2.3 trillion, beating analysts’ expectations by 8.5%. This print was 48.9% higher than the same quarter last year.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Investment Banking & Brokerage companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

This is because for financials businesses, interest income and expense should be factored into the definition of profit but taxes - which are largely out of a company's control - should not.

Over the last four years, LPL Financial’s pre-tax profit margin has risen by 1.4 percentage points, going from 8.5% to 7%. It has also declined by 9.1 percentage points on a two-year basis, showing its expenses have consistently increased at a faster rate than revenue. This usually raises questions unless the company is in high-growth mode and reinvesting its profits into attractive ventures.

LPL Financial’s pre-tax profit margin came in at negative 0.7% this quarter. This result was 12.1 percentage points worse than the same quarter last year.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

LPL Financial’s spectacular 23.7% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

LPL Financial’s two-year annual EPS growth of 8% was mediocre and lower than its 26.2% two-year revenue growth.

We can take a deeper look into LPL Financial’s earnings to better understand the drivers of its performance. LPL Financial’s pre-tax profit margin has declined over the last two yearswhile its share count has grown 4.2%. This means the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q3, LPL Financial reported adjusted EPS of $5.20, up from $4.16 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects LPL Financial’s full-year EPS of $19.11 to grow 12.5%.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, LPL Financial has averaged an ROE of 40.7%, exceptional for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This shows LPL Financial has a strong competitive moat.

The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.

If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.

LPL Financial currently has $7.52 billion of debt and $5.04 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 1.7×. We think this is safe and raises no red flags. In general, we’re comfortable with any ratio below 3.5× for a financials business.

We were impressed by how significantly LPL Financial blew past analysts’ AUM expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 1.3% to $344 immediately after reporting.

Updated: December 4, 2025 at 11:40 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own LPL Financial, you should also grasp the company’s longer-term business quality and valuation.

LPL Financial is an amazing business ranking highly on our list. For starters, its revenue growth was exceptional over the last five years and is expected to accelerate over the next 12 months. And while its declining pre-tax profit margin shows the business has become less efficient, its stellar ROE suggests it has been a well-run company historically. Additionally, LPL Financial’s spectacular EPS growth over the last five years shows its profits are trickling down to shareholders.

LPL Financial’s P/E ratio based on the next 12 months is 15.9x. Scanning the financials landscape today, LPL Financial’s fundamentals clearly illustrate that it’s an elite business, and we like it at this price.

Wall Street analysts have a consensus one-year price target of $443.08 on the company (compared to the current share price of $369.75), implying they see 19.8% upside in buying LPL Financial in the short term.