Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Capital One Keeps Growing

Capital One Financial (NYSE: COF) is a neat little value investment because it keeps making money and growing.

What I like most at Capital One is the revenues; which grew to a new high of $27.27 billion on June 30, 2017. That number was a $450 million increase over March 2017, when COF reported revenues of $25.82 billion. It was also a $22.70 billion increase over June 2016 when the revenues were $24.57.

This is good, and far better than American Express (NYSE: AXP); which reported $68 million in revenue growth in second quarter 2017. Amex reported $31.92 billion in revenues in March 2017 that grew to $31.99 million in June 2017.

Is Capital One Making Money?

It looks as if Capital One’s business model is capable of prolonged growth but is it making money? The answer when looks at the numbers found on ycharts is yes.

Some proof that Capital One is making a lot of money includes:

  • $3.642 billion in net income on June 30, 3017. This was a slight increase over the $3.548 billion reported in March 2017; but down from the $3.989 billion for June 2016.

  • A free cash flow of $2.941 billion on March 31, 2017.


  • Cash and short-term investments of $6.715 billion on June 30, 2017.


  • $14.01 billion in cash from financing on March 31, 2017.


  • $10.92 billion in cash from operations on March 31, 2017.

  • Assets of $350.59 billion on June 30, 2017.


  • A market capitalization of $40 billion on August 11, 2017.


  • An enterprise value of $82.46 billion on August 11, 2017.


  • A profit margin of 15.45% on June 30. 2017.


Capital One has a Lot of Float

The bottom line is that Capital One has a lot of float, and that it is definitely undervalued making it a classic value investment. The interesting thing is that investors were making a lot of money in the form of:

  • A return on equity of 7.56% on June 30, 2017.

  • A dividend of 40¢ paid on August 3, 2017.


Note: the dividend is not all that it’s cracked up to be because it has not increased since March 2015 when the payout rose from 30¢ to 40¢. Still this stock looks safe and you can make money from it.

Why Capital One is Poised for Growth

More importantly Capital One is poised for growth because it has an excellent online banking operation.

Disclosure: I’ve been a Capital One 360 online banking customer for around 10 years and I’ve never had any problems with it. The services actually work; unlike some other alleged online banks and the fees are pretty reasonable. I particularly like having the ability to cut checks without using a checkbook, and the fast online bill pay.

This I think will be the big driver of growth at Capital One because of all the dissatisfaction with the Monster Banks; particularly Wells Fargo (NYSE: WFC). Also poised for growth are Capital One’s credit cards which are popular.

A major area for credit card revenue growth at Capital One is retail partnerships. Capital One is the exclusive credit card provider for Costco Wholesale (NASDAQ: COST) members in Canada. It actually replaced American Express at club stores in that country which is pretty impressive.

A big potential opportunity for Capital One would be to get into Costco; or the Walmart-owned Sam’s Club, in the United States. Another greater bonanza would be to issue a Capital One MasterCard for Amazon Prime customers. Since there are currently around 80 million Amazon Prime members in the United States that would be a vast market.

Is Banking Doomed?

Another opportunity for Capital One investors is all the hysteria about banking being doomed.

The truth is that retail banking is doomed but banking has a long future ahead of it and Capital One will be a big part of it. Capital One’s future is bright because of the extensive business it does on line. It might be in a better position to cash in on the growth of online banking and app-based payments.

Major opportunities for Capital One include mobile wallets such as Apple Pay and Android Pay and cryptocurrency. Capital One might be able to grab a large share of the market if it would become the first US bank to bitcoin or to bring out a bitcoin mobile app.

Another opportunity would be a credit card that converts cryptocurrency into US dollars. TenX is rolling such a card out right now and conflicting reports indicate it might be a MasterCard or a Visa.

An interesting possibility for Capital One would be to buy TenX ; which might potentially lead to huge new markets in the developing world. Cryptocurrencies are becoming increasingly popular in unstable nations plagued by inflation and government interference with the economy.

Capital One seems to have a very bright future; and it makes money, but I think it is a little overvalued at the $82.70 a share it was fetching on August 11, 2017. Despite that COF is still a good value investment; because you will not lose money with this stock.