Capital One (COF)

Financial services company Capital One (NYSE:COF) announced better-than-expected revenue in Q3 CY2025, with sales up 53.4% year on year to $15.36 billion. Its GAAP profit of $4.83 per share was 35.4% above analysts’ consensus estimates.

Company Overview

Starting as a credit card company in 1988 before expanding into a full-service bank, Capital One (NYSE:COF) is a financial services company that offers credit cards, auto loans, banking services, and commercial lending to consumers and businesses.

Credit card companies facilitate electronic payments and extend revolving credit to consumers. Growth comes from increasing digital payment adoption, cross-border transaction growth, and value-added services for cardholders and merchants. Challenges include regulatory scrutiny of fees and practices, competition from alternative payment methods, and potential credit losses during economic downturns.

Capital One's primary competitors include major credit card issuers and banks such as JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Citigroup (NYSE:C), American Express (NYSE:AXP), and Discover Financial Services (NYSE:DFS). In auto lending, it competes with Ally Financial (NYSE:ALLY) and traditional banks.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Capital One’s 11% annualized revenue growth over the last five years was decent. Its growth was slightly above the average financials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Capital One’s annualized revenue growth of 15.1% over the last two years is above its five-year trend, suggesting its demand 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, Capital One reported magnificent year-on-year revenue growth of 53.4%, and its $15.36 billion of revenue beat Wall Street’s estimates by 2.2%.

Net interest margin (NIM) represents the unit economics of a financial institution by measuring the profitability of its interest-bearing assets relative to its interest-bearing liabilities. It's a fundamental metric that investors use to assess lending premiums and returns.

Capital One’s net interest margin has increased by 140.8 and 89.5 basis points (100 basis points = 1 percentage point) over the last four and two years, respectively. These rates of change were better than the broader financials industry. The firm’s NIM for the trailing 12 months was 7.5%.

Topline growth alone doesn't tell the complete story - the profitability of that growth shapes actual earnings impact. Credit Card companies track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.

We pay attention to efficiency ratios, but we and the market care most about how they’ve trended over time. Said differently, has the company become more or less efficient? It’s somewhat counterintuitive, but a lower efficiency ratio is better.

Over the last four years, Capital One’s efficiency ratio couldn’t build momentum, hanging around 45.5%. It has also worsened by 2.1 percentage points on a two-year basis, showing its expenses have recently 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.

Capital One’s efficiency ratio came in at 53.8% this quarter, falling short of analysts’ expectations by 323.7 basis points (100 basis points = 1 percentage point). This result was 12.4 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.

Capital One’s EPS grew at a weak 3.3% compounded annual growth rate over the last five years, lower than its 11% annualized revenue growth. However, its efficiency ratio actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

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.

For Capital One, its two-year annual EPS declines of 57.9% show it’s continued to underperform. These results were bad no matter how you slice the data.

In Q3, Capital One reported EPS of $4.83, up from $4.41 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 Capital One’s full-year EPS of $2.36 to grow 592%.

Financial firms profit by providing a wide range of services, making them fundamentally balance sheet-driven enterprises with multiple intermediation roles. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these multifaceted institutions.

When analyzing this sector, tangible book value per share (TBVPS) takes precedence over many other metrics. This measure isolates genuine per-share value and provides insight into the institution’s capital position across diverse operations. Traditional metrics like EPS are helpful but face distortion from the complexity of diversified operations, M&A activity, and various accounting rules that can obscure true performance across multiple business lines.

Capital One’s TBVPS grew at a tepid 4.6% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 9.5% annually over the last two years from $87.78 to $105.18 per share.

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, Capital One has averaged an ROE of 11%, respectable for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Capital One has averaged a Tier 1 capital ratio of 13.4%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

It was good to see Capital One beat analysts’ EPS expectations this quarter. We were also excited its net interest margin outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 3.5% to $224.80 immediately following the results.

Updated: December 4, 2025 at 11:19 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Capital One.

There are a lot of things to like about Capital One. First off, its revenue growth was good over the last five years and is expected to accelerate over the next 12 months. And while its improving efficiency ratio shows the business has become more productive, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, its expanding net interest margin shows its loan book is becoming more profitable.

Capital One’s P/E ratio based on the next 12 months is 11.4x. When scanning the financials space, Capital One trades at a fair valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $260.24 on the company (compared to the current share price of $229.77), implying they see 13.3% upside in buying Capital One in the short term.