JPMorgan Chase (JPM 2.16%) is a financial services powerhouse. Its product offering ranges from basic checking and savings accounts for consumers all the way to mergers and acquisitions advice for some of the largest corporations around. This gives it a pivotal role in our economy.
Shares have produced a total return well in excess of the S&P 500 (^GSPC 1.59%) in the past five years. Investors want to know if a repeat performance is in the cards. Is this top bank stock a buy right now?
JPMorgan Chase’s staying power
Investing is best when it’s focused on the long term. Owning businesses for many years lets compounding work its magic. Of course, the key to doing this successfully is to first find companies that have staying power.
JPMorgan Chase fits the bill here. Facilitating the flow of capital to support the smooth functioning of economies and capital markets is perhaps the most important activity any company could be doing. Imagine what would happen if JPMorgan Chase’s operations just suddenly stopped tomorrow. This highlights how critical the business is to its customer base.
With its 2025 revenue of $178 billion and asset base of $4 trillion, this financial services entity is absolutely massive. That scale provides an advantage. JPMorgan Chase is better able to leverage its operating expenses compared to smaller rivals. Its size also allows it to make significant investments in marketing and technology to further advance its industry position.
JPMorgan Chase’s net profit margin in the past five years averaged a superb 33%. This is higher than all of its money-center peers, a group that includes Bank of America, Wells Fargo, and Citigroup.
Like other banks, JPMorgan benefits from switching costs as well. Once a consumer signs up for a checking account and a credit card, for example, they are likely to handle more of their financial activity with the same company. And this essentially leads to a lock-in effect.
The same is probably true on the corporate side. Let’s say a hot tech start-up decides to go public and hires JPMorgan Chase to help with the transaction. If things go well, the bank has a client for life that can come to it for any sort of strategic advisory. At the end of the day, this results in lucrative fees that pad the company’s bottom line.
Don’t forget the valuation
Investors won’t struggle to figure out that JPMorgan is a high-quality business. It is a leader in the banking industry, has a highly regarded CEO in Jamie Dimon, and possesses sustainable competitive advantages. I think the stock should at least be on every investor’s radar.
But is this a business to buy for your portfolio right now? I don’t believe so. A look at the valuation will cause investors to think the same way.
Shares traded at a price-to-book (P/B) ratio of under 1.2 in late 2022. Buying the stock then would’ve resulted in a fantastic return. The market was probably worried about the impact rapidly rising interest rates would have.
Since then, investor sentiment has drastically improved, thanks to strong financial results. JPMorgan’s net interest income is up 77% in the past three years.
As of this writing, the stock trades at a P/B ratio of 2.3. The average of its money-center rivals is just 1.2. To be fair, JPMorgan typically sells at a premium, as it is the most dominant bank in this group.
However, it’s hard to argue that the current valuation isn’t stretched. In the past five years, the P/B multiple has averaged 1.6. And besides hitting a peak in February, the stock hasn’t been more expensive in the last 20 years.
Keep JPMorgan Chase on your watch list for now. Given the ebbs and flows of the economic cycle, there will likely be a time to scoop up shares in the future at a much more compelling valuation.
Citigroup is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.
