Barron's Article Makes Comments on OptionsXpress (OXPS); Shares Look Overvalued After Strong Run

September 28, 2009 10:46 AM EDT

Barron's article makes comments on OptionsXpress (Nasdaq: OXPS).

Some Positive Points Include:

1) Optionetics, recently acquired by OXPS, has trading seminars that should help the Company open up to 10,000 new accounts annually.

2) Options volumes were starting a decade of 22% annual growth, from 400 million contracts a year in 1999 to 3.3 billion in 2008. optionsXpress also benefited from the surge in options volume.

3) In 2008, about 32,000 folks came to the free workshops and about 10,000 paid for follow-up seminars.

4) For four years running, a Barron's reviewer gave OXPS's online trading tools the top rating.


Some Negative Points Include:

1) The wave of retail options trading may have crested for optionsXpress.

2) OPXS's rival, thinkorswim, was acquired by TD Ameritrade (Nasdaq: AMTD) for $600 million, which was a multiple of 1.6-times trailing revenue and seven-times pretax earnings. At those multiples, optionsXpress would at best trade for 80% of its current share value.

3) Option trader, George Fontanills, who is part of OXPS now, may have been more successful selling seminars than trading options.

4) After enjoying 30% growth in 2007, the OXPS's revenue flattened in 2008 to $247 million, while earnings slipped 8% to $90 million. Per-share earnings fell only 4%, to $1.49, due to share buybacks.

5) By July 2009, one of the broker's key performance measures was faltering: Net new accounts for the month were just 1,400, after averaging 3,400 in the prior 12 months.

6) OptionsXpress shares look overvalued after a strong run. The firm's bid to boost growth by buying a seminar group seems ill-advised, based on the record of the group's founder.

optionsXpress Holdings, Inc. provides Internet-based options, futures, stock, mutual fund, and fixed-income brokerage services to investors located in the United States and internationally.

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