Defensive Investors, the most conservative level of ModernGraham style investing, may not be interested in Capital One Financial due to the unstable earnings and low earnings growth over the last ten years, but Enterprising Investors should be very interested. The company passes all of the investor types’ requirements, and they should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
In recent years, the company has grown its EPSmg (normalized earnings) from $3.20 in 2010 to an estimated $6.86 for 2014. This is an outstanding level of growth, which significantly outpaces the market’s implied estimate of only 1.46%. In fact, the actual growth demonstrated by the company is greater than twenty percent. As a result of the strong growth demonstrated historically, the ModernGraham valuation model returns an estimate of intrinsic value well above the price, supporting a clear conclusion that the company is significantly undervalued. Enterprising Investors are therefore encouraged to proceed with further research to determine whether Capital One Financial is suitable for their own individual portfolios.
Be sure to check out previous ModernGraham valuations of Capital One Financial for better perspective.