Image source: NatWest Group plc
Like fools, we are always on the hunt for bargain opportunities in the market. Another company that recently caught my eye NatWest (LSE:NWG), i FTSE 100 a banker. After crunching the numbers, I think the banking giant could be a tempting piece for us value-hungry investors. Here's why I'm considering adding it to my portfolio.
Open trading?
Over the past year, the stock has been on a tear, up 63%. That's not just beating rivals in the UK banking sector, at an average of 18.8%, it's absolutely terrifying. While we Fools know that past performance doesn't guarantee future results, this impressive showing suggests that management may have found their mojo after an uncertain few years.
Discounted cash flow (DCF) suggests the shares are trading at a steep 55.8% discount to their fair value estimates. While it's not a guarantee anytime soon, that's the kind of number that makes serious investors like me sit up and take notice.
With a price-to-earnings (P/E) ratio of just 6.8 times, the company also looks very cheap compared to the broader market, as well as many of its banking rivals. And let's not forget the price-to-book (P/B) ratio of 0.8 times. If the P/B falls below one, it usually means that the market is valuing it below the book value of its assets. Although we need to tread carefully with bank ratings, given the complexity of the sector, this low P/B ratio certainly makes me think.
Recent financial results have been excellent. In its second quarter 2024 earnings report, the bank pulled a rabbit out of the hat by beating expectations for both earnings per share and revenue. This shows that the underlying business is firing on all cylinders.
In the trailing 12 months, the business made a profit of £4.19bn on revenue of £13.75bn. With a net profit margin of 30.44%, it is clear that management knows how to make good money for its shareholders.
Healthy dividend
For us equity lovers, the business makes a nice yield of 4.9%. With a payout ratio of 37%, profits look well covered, leaving plenty of room for potential upside in the future.
However, let's not get carried away, Fools. Dividend history has been as unpredictable as the British weather. History has shown us that bank profits can be low, especially when the economy is in recession.
Dangers on the horizon
So, let's not get too carried away. All investments come with risks, and NatWest is no exception. Analysts predict that revenue will decline by an average of 1.1% per year over the next three years. The fact that wages may be volatile may add momentum to stocks and shares if they do.
And let's not forget, banks are cyclical like the seasons. Any major economic downturn can give a company serious damage.
I tick the boxes
Despite these bumps in the road, I think NatWest would be a nice addition to my Foolish portfolio. The combination of price parity, strong currencies, and profits that make my wallet smile is very tempting.
For Fols willing to ride out some cyclical waves and potentially uneven growth, this FTSE 100 banking giant could be worth a closer look. I will be adding shares next time.
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