Charles Schwab (SCHW)

Financial services giant Charles Schwab (NYSE:SCHW) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 26.6% year on year to $6.14 billion. Its non-GAAP profit of $1.31 per share was 5.2% above analysts’ consensus estimates.

Company Overview

Founded in 1971 as a disruptive force challenging Wall Street's high fees and limited access, Charles Schwab (NYSE:SCHW) is a wealth management and brokerage firm that provides investment services, banking, and financial advice to individual investors and independent advisors.

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.

Charles Schwab competes with other major financial services firms including Morgan Stanley (NYSE:MS), Bank of America's Merrill Lynch (NYSE:BAC), Fidelity Investments (privately held), and interactive Brokers (NASDAQ:IBKR). In the discount brokerage space, it also faces competition from Robinhood (NASDAQ:HOOD) and newer fintech entrants.

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Charles Schwab’s revenue grew at an impressive 17.8% compounded annual growth rate over the last five years. Its growth beat 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. Charles Schwab’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 7.4% over the last two years was well below its five-year trend. 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, Charles Schwab reported robust year-on-year revenue growth of 26.6%, and its $6.14 billion of revenue topped Wall Street estimates by 2.2%.

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.

The pre-tax profit margin includes interest because it's central to how financial institutions generate revenue and manage costs. Tax considerations are excluded since they represent government policy rather than operational performance, giving investors a clearer view of business fundamentals.

Over the last four years, Charles Schwab’s pre-tax profit margin has fallen by 6.4 percentage points, going from 39.8% to 46.2%. It has also expanded by 7 percentage points on a two-year basis, showing its expenses have consistently grown at a slower rate than revenue. This typically signals prudent management.

Charles Schwab’s pre-tax profit margin came in at 49.2% this quarter. This result was 11.2 percentage points better than the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Charles Schwab’s EPS grew at a solid 14.5% compounded annual growth rate over the last five years. Despite its pre-tax profit margin improvement during that time, this performance was lower than its 17.8% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Charles Schwab, its two-year annual EPS growth of 13.1% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Charles Schwab reported adjusted EPS of $1.31, up from $0.77 in the same quarter last year. This print beat analysts’ estimates by 5.2%. Over the next 12 months, Wall Street expects Charles Schwab’s full-year EPS of $4.50 to grow 17.6%.

Return on equity, or ROE, quantifies bank profitability relative to shareholder equity - an essential capital source for these institutions. Over extended periods, superior ROE performance drives faster shareholder wealth compounding through reinvestment, share repurchases, and dividend growth.

Over the last five years, Charles Schwab has averaged an ROE of 14%, healthy for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This is a bright spot for Charles Schwab.

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, Charles Schwab has averaged a Tier 1 capital ratio of 27%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

It was encouraging to see Charles Schwab beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 4.1% to $98.25 immediately following the results.

Updated: December 4, 2025 at 11:27 PM EST

Before deciding whether to buy Charles Schwab or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

We think Charles Schwab is a solid business. To kick things off, its revenue growth was impressive over the last five years. On top of that, Charles Schwab’s expanding pre-tax profit margin shows the business has become more efficient, and its solid EPS growth over the last five years shows its profits are trickling down to shareholders.

Charles Schwab’s P/E ratio based on the next 12 months is 17.3x. At this valuation, there’s a lot of good news priced in. Charles Schwab is a good one to add to your watchlist - there are companies featuring superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $111.61 on the company (compared to the current share price of $95.13).