For most investors, how much a stock's price changes over time is important. This factor can impact your investment portfolio as well as help you compare investment results across sectors and industries.
The fear of missing out, or FOMO, also plays a factor in investing, especially with particular tech giants, as well as popular consumer-facing stocks.
What if you'd invested in Discover (DFS) ten years ago? It may not have been easy to hold on to DFS for all that time, but if you did, how much would your investment be worth today?
Discover's Business In-Depth
With that in mind, let's take a look at Discover's main business drivers.
Founded in 1986 and based in Riverwoods, IL, Discover Financial Services is a direct banking and payment services company in the United States. The company offers credit cards, personal, student and home loans as well as deposit products. In March 2009, Discover Financial became a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act in connection with its participation in the U.S. Treasury’s Capital Purchase Program.
Discover Financial offers its products and services with acceptance in more than 185 countries and territories. The company operates through three networks:
The Discover Network – Discover Financial’s credit card payment network.
The PULSE network – Discover Financial’s ATM, debit and electronic funds transfer network.
Diners Club International – Discover Financial’s global payment network.
Discover Financial manages its business activities in two segments:
The Direct Banking segment (accounted for 88.3% of pretax income in 2020): This includes Discover card-branded credit cards issued to individuals and small businesses in the Discover Network. The segment also offers personal loans, student loans, home loans, prepaid cards and other consumer lending and deposit products.The Payment Services segment (11.7%): This includes PULSE, Diners Club and its network partners business (previously referred to as the third-party issuing business), which includes credit, debit and prepaid cards issued by the third parties on the Discover Network.
Anyone can invest, but building a successful investment portfolio takes a combination of a few things: research, patience, and a little bit of risk. So, if you had invested in Discover a decade ago, you're probably feeling pretty good about your investment today.
According to our calculations, a $1000 investment made in June 2011 would be worth $5,425.40, or a gain of 442.54%, as of June 11, 2021, and this return excludes dividends but includes price increases.
In comparison, the S&P 500 gained 233.54% and the price of gold went up 19.10% over the same time frame.
Analysts are forecasting more upside for DFS too.
Discover Financial’s shares have outperformed its industry in a year. It has undertaken several cost-cutting initiatives in response to the current volatile environment. Expansion in the global payments business and an attractive core business poise the company well for long-term growth. Its strong balance sheet is another positive, highlighted by its cash and investment securities being higher than long-term borrowings. Its banking business provides significant diversification benefits. A solid financial position enables the company to deploy capital via buybacks and dividends. However, its expenses are expected to increase going forward, which will put pressure on the margins. Increasing provision for loan losses bothers. Its first-quarter earnings beat estimates driven by solid performance by its Direct Banking business.