Are NAB Shares Stretched After 26% Rally and Latest Rate Cut Expectations in 2025?

If you have been eyeing National Australia Bank (NAB) shares and wondering whether now is a good time to buy, hold, or cash in, you are not alone. With the stock closing at $44.67 recently and notching up a 20.0% gain year-to-date, there is plenty to talk about. Just look at its long-term run: 198.4% over five years. It is clear NAB has kept many shareholders happy. The last twelve months alone saw the price surge 25.9%, outpacing much of the broader Australian market.

Recently, market sentiment has been shaped by shifting expectations around interest rates and the banking sector’s resilience in a cooling economy. Investors appear to be re-evaluating risk, and this has pushed banks like NAB higher in recent sessions. The stock is up 0.9% in just the last week and 3.5% over the last month. However, while this momentum is compelling, the real question is whether the stock still offers value at these levels.

According to a simple valuation framework, NAB is currently undervalued in 0 out of 6 key checks, giving it a valuation score of 0. That might raise eyebrows for anyone counting on a bargain. To make sense of what this means (and whether it should change your strategy), let’s break down how valuation scores like this are calculated and, later, consider a more insightful way to look at what NAB stock is really worth.

National Australia Bank scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: National Australia Bank Excess Returns Analysis

The Excess Returns valuation model looks at how much National Australia Bank (NAB) generates above the minimum return required by shareholders on its equity investment. This method focuses on the bank's ability to create value from its existing asset base and future earnings. In other words, it examines whether NAB’s business is really generating “excess returns” for investors beyond a simple cost of capital.

For NAB, the book value per share stands at A$20.35, with analysts estimating a stable earnings per share (EPS) of A$2.49 going forward. These EPS projections are based on the weighted future Return on Equity estimates from 12 analysts, reflecting an average return on equity of 11.38%. NAB’s cost of equity is A$1.70 per share, with the actual excess return calculated at A$0.79 per share. Over the longer term, the stable book value per share is expected to rise to A$21.86, based on projections from nine analysts.

Putting all these pieces together, the model suggests NAB’s intrinsic value is lower than the recent share price. This indicates the stock trades at a 15.4% premium. Despite steady returns, this means the shares are currently overvalued on an excess returns basis.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for National Australia Bank.

Our Excess Returns analysis suggests National Australia Bank may be overvalued by 15.4%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: National Australia Bank Price vs Earnings

The price-to-earnings (PE) ratio is widely used to value established, profitable companies like National Australia Bank (NAB) because it gives investors a sense of how much they are paying for each dollar of current earnings. It is especially informative for banks, where profits are relatively stable, and helps put both short-term momentum and longer-term prospects into perspective.

A company's "normal" or "fair" PE ratio typically depends on growth prospects and perceived risk. High-growth, low-risk businesses generally command richer valuations, while slower growth, higher risk stocks tend to trade at lower multiples. NAB currently trades at a PE of 19.52x, compared to a peer average of 17.77x and an industry average of just 10.34x for the banking sector. On the surface, this premium might give investors pause.

This is where Simply Wall St’s “Fair Ratio” comes in. Unlike simple comparisons to industry or peers, the Fair Ratio incorporates a broader set of company-specific dynamics such as earnings growth, profit margins, risk factors, market cap, and sector influences. For NAB, the Fair PE Ratio is 18.98x. Comparing this to the actual PE of 19.52x, the stock is valued slightly above the fair value, but the difference is marginal. The two figures are so close that NAB’s valuation appears reasonable in the current context.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your National Australia Bank Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is your personalized, forward-looking story about a company that connects what you believe will happen (future revenue, earnings, and margins) to a financial forecast and ultimately to what you think is a fair value. Narratives turn the numbers into a living story, allowing you to combine your own insights, expectations, and context with up-to-date company data.

Narratives are featured on Simply Wall St’s Community page, used by millions of investors, making it easy and accessible to map out your view and compare it with others. This approach helps you decide if a stock is a buy or sell by comparing your calculated fair value to the current price, and updates dynamically whenever fresh news or results are released. For example, one investor might believe digital payments and urban growth will fuel NAB’s revenue, supporting a bullish price target of A$39.14. Another might see margin pressure and regulatory risk, leading to a more cautious outlook of just A$28.01. In this way, Narratives capture not only the numbers but also the logic and perspective behind every investment decision.

Do you think there's more to the story for National Australia Bank? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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