Sallie Mae’s stock price has taken a beating over the past six months, shedding 34% of its value and falling to $20.93 per share. This may have investors wondering how to approach the situation.
Following the drawdown, is this a buying opportunity for SLM? Find out in our full research report, it’s free.
Why Does SLM Stock Spark Debate?
Originally created as a government-sponsored enterprise before privatizing in 2004, Sallie Mae (NASDAQ: SLM) is a financial services company that provides private education loans, savings products, and educational resources to help students and families pay for college.
Two Things to Like:
1. EPS Surges Higher Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sallie Mae’s EPS grew at a remarkable 20.2% compounded annual growth rate over the last two years, higher than its 4.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
2. Stellar ROE Showcases Lucrative Growth Opportunities
Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.
Over the last five years, Sallie Mae has averaged an ROE of 32.8%, 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 Sallie Mae has a strong competitive moat.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
Regrettably, Sallie Mae’s revenue grew at a sluggish 2% compounded annual growth rate over the last five years. This wasn’t a great result, but there are still things to like about Sallie Mae.
Final Judgment
Sallie Mae’s merits more than compensate for its flaws. After the recent drawdown, the stock trades at 7.5× forward P/E (or $20.93 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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