By Julia Boorstin

(FORTUNE Magazine) – What we said

In "Is This Discount Broker Oversold?" (March 7, 2005) we noted that Ameritrade's stock had fallen by more than a third over the previous year despite record profits and operating margins. With its shares trading at just 14 times projected 2005 earnings, we concluded that Ameritrade was too cheap.

What happened

The market for Ameritrade (AMTD, $20) heated up: The stock has spiked almost 80% since our story ran--but much of that gain is temporary. In May the company fended off a takeover bid by rival E*Trade. Then, in June, Ameritrade said it was buying the TD Waterhouse USA brokerage business from Toronto-Dominion Bank for $3.3 billion. Under the terms of the deal, Ameritrade stockholders (as of a yet-to-be-announced date) will get a one-time $6 per share dividend. That payout is now priced into the stock. But subtract the dividend and the stock still trades at just 18 times 2005 earnings. Meanwhile, in July the broker reported another quarter of record net income. And Ameritrade CEO Joe Moglia, who will run the new TD Ameritrade, says that he expects to wring out $378 million in cost synergies, and that increased trading could boost revenues by up to $200 million annually starting in 2007. The stock is no longer a steal, but it's probably still a long-term buy. -- Julia Boorstin