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The price of FTSE 100's Standard Chartered (LSE: STAN) is up 44% from 12 months trading at £5.71.
However, such a rise does not mean that there is no value left in the stock. This is not at all like this emerging market banking expert, in my opinion.
Are stocks cheap right now?
To work my way through answering this question, I start with the key measures of stock valuation, including the price-to-book (P/B) ratio.
Standard Chartered currently trades at a P/B of just 0.5 – below par (by Barclays) of their rival team.
These have a P/B ratio of 0.7 and include NatWest again Lloyds by 0.8, too HSBC by 0.9. So Standard Chartered is cheaper on this basis.
The same can be said about its relative valuation on the price-to-sales (P/S) ratio. It currently trades at just 1.5 compared to its competitors average of 2.1.
So, how cheap is it in monetary terms? To accomplish this, I performed a discounted cash flow analysis.
It shows that the bank's shares are currently up 62% on their price of £8.20. This means that the fair value of the stock is £21.58.
It may go lower or higher than that, given the vagaries of the market. However, it is striking to me that it seems to be at a low price point right now.
Where will the growth come from?
The main risk for the bank is the decrease in the interest rate between the loans offered and the deposits received in several countries. This is a function of the broad decline in interest rates in several of the world's major economies.
However, as it stands, analyst estimates for the deal are that Standard Chartered's earnings will grow by 11.9% per year until the end of 2026.
Most importantly for me, it focuses on growth areas that do not depend on this difference in loan and deposit interest. Instead, these businesses make money through fees for high-value services provided.
Wealth management is a good example, especially in high-growth countries like India. The bank's revenue from this business jumped 27% year-on-year in H1 2024, to $618m.
Its Global Banking business (including capital markets operations and lending) is another. This saw revenue increase by 11% over the same period to $488m.
Overall in H1, the bank's reported profit before tax rose 5% to $3.492bn.
Will I buy shares?
I like that most of its business is in emerging markets in Asia, Africa and the Middle East. These are the regions with high demand for high fee based banking services.
I also like that the bank has a goal of keeping costs under $12bn to 2026, alongside its growth strategy.
I'm also a fan of buying back common shares that provide some support to the share price.
However, I'm over 50 now with a focus on stocks that produce dividends rather than 7% returns, I can't afford them. The stock currently returns just 2.6%, although this is predicted to rise to 3.2% in 2025 and 3.6% in 2026.
That being said, if I were at an earlier stage in my investment journey, I would definitely buy the stock for the above reasons.
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