Event context and recent stock performance

Oppenheimer Holdings (OPY) has drawn investor attention after recent price swings, with the stock moving lower over the past week and day, while showing stronger gains over the past month and past 3 months.

Over the past day, the share price recorded an 8% decline, alongside a 9.2% decline over the past week. In contrast, the stock shows gains of 18.4% over the past month and 34.8% over the past 3 months.

Despite the recent pullback, with the latest share price at US$103.51, Oppenheimer Holdings still shows strong momentum. It combines a 42.5% year to date share price return with an 80.5% one year total shareholder return and a 191.7% three year total shareholder return. This hints at shifting expectations around its growth prospects and risk profile.

If you are looking for other ideas in a similar market mood, it could be worth scanning for 18 top founder-led companies

So with Oppenheimer Holdings posting strong recent returns, yet screening with a low value score of 2 and a reported intrinsic premium, is the pullback giving you a buying opportunity, or is the market already pricing in future growth?

Price to earnings of 7.5x: Is it justified?

On a headline basis, Oppenheimer Holdings trades on a P/E of 7.5x, which looks low against a last close of $103.51 and its recent share price strength.

The P/E ratio compares the current share price to the company’s earnings per share and gives you a quick sense of how much investors are paying for each dollar of profit. For a middle market investment bank and broker dealer like Oppenheimer Holdings, earnings can be sensitive to market activity, deal flow and trading volumes. This multiple often reflects how steady or cyclical investors think those profits might be.

There are a few moving parts behind this low P/E. Earnings declined by 15.9% per year over the past 5 years, but grew 107.4% over the past year, with net profit margins of 9.6% compared with 5.3% a year earlier. That combination of weak longer term earnings history, stronger recent profit growth and current return on equity of 14.8% gives some context for why the market might not be assigning a higher multiple despite the rebound.

Where the comparison really stands out is against peers. The US Capital Markets industry trades on an average P/E of 42x, while Oppenheimer Holdings sits at 7.5x, and the peer group used for its preferred multiple screens around 10.1x. The US market overall sits at 19.5x. That is a sizable gap, suggesting investors are paying much less for each dollar of OPY earnings than for sector peers and the wider market.

Result: Price to earnings of 7.5x (UNDERVALUED)

However, there is still a risk that cyclical deal activity or trading volumes affect earnings, and that OPY’s low value score and intrinsic premium indicate softer expectations.

Another view using the SWS DCF model

The low 7.5x P/E paints Oppenheimer Holdings as cheap, but the SWS DCF model points the other way. With the share price at $103.51 and an estimated future cash flow value of $53.61, the stock screens as overvalued on this cash flow view.

That gap suggests the market price builds in stronger or more durable cash generation than the model implies. This raises the question of whether recent profit strength is the new normal or closer to a high point in the cycle.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Oppenheimer Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 54 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With sentiment clearly mixed, now is a good time to review the numbers yourself and decide what really matters for your portfolio. To weigh up both sides, start with the 2 key rewards and 2 important warning signs

Looking for more investment ideas?

If OPY has sparked your interest, do not stop here. Broaden your watchlist with focused ideas that match how you like to invest.

• Target potential value opportunities by scanning 54 high quality undervalued stocks that pair stronger fundamentals with prices that may not fully reflect them yet.
• Build a steadier income stream by reviewing 13 dividend fortresses that offer higher yields supported by underlying business strength.
• Lower the bumps in your portfolio by focusing on 73 resilient stocks with low risk scores that screen well on financial resilience and risk metrics.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.