Has Scotiabank’s 23.9% Surge Put Shares in the Sweet Spot for 2025?

• Wondering if Bank of Nova Scotia is undervalued, overhyped, or right in the sweet spot? You are not alone, especially given the bank's long-standing market presence and reputation for steady growth.
• Recently, BNS stock has notched up a solid 1.8% gain in just the past week, climbed 4.8% in the last month, and soared an impressive 23.9% year-to-date. This caps a robust 27.3% return over the past year.
• This uptick comes on the heels of sector-wide optimism as Canadian banks benefit from a stabilizing interest rate outlook and renewed investor confidence. Market watchers have also pointed to regulatory updates and industry consolidation talks as reasons for the amplified interest in leading banks like Bank of Nova Scotia.
• On the valuation front, Bank of Nova Scotia scores just 2 out of 6 in our value checks, meaning some key metrics suggest the shares are not a screaming bargain. Next, we will unpack those different valuation approaches and look at why there might be an even more insightful way to assess BNS's true worth by the end of our analysis.

Bank of Nova Scotia scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Bank of Nova Scotia Excess Returns Analysis

The Excess Returns model assesses a company by examining how effectively it generates returns from invested capital above the cost of equity. For Bank of Nova Scotia, this model uses the bank’s book value, earnings, and expected return on equity to determine intrinsic value and whether the bank is truly outperforming peers in value creation.

Currently, Bank of Nova Scotia has a book value of CA$67.45 per share and a stable earnings per share (EPS) of CA$8.60, according to weighted forecasts from nine analysts. Its cost of equity stands at CA$5.46 per share, while the excess return is CA$3.14 per share, indicating the yearly profit the bank generates beyond its equity cost. The average return on equity is a solid 13.02%, backed by a stable book value projection of CA$66.06 per share from eight analysts.

Based on this analysis, the intrinsic value implied by the Excess Returns approach suggests Bank of Nova Scotia stock is 22.2% undervalued at current prices. This margin points to meaningful upside for long-term investors as the bank continues to generate returns comfortably above its cost of capital.

Result: UNDERVALUED

Our Excess Returns analysis suggests Bank of Nova Scotia is undervalued by 22.2%. Track this in your watchlist or portfolio, or discover 926 more undervalued stocks based on cash flows.

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

Approach 2: Bank of Nova Scotia Price vs Earnings

The Price-to-Earnings (PE) ratio is widely recognized as a suitable valuation metric for profitable companies like Bank of Nova Scotia. This is because it directly relates a company’s market price to its per-share earnings, giving investors a clear sense of how much they are paying for each dollar of profit the company generates.

However, what is considered a “normal” or “fair” PE ratio can vary significantly depending on growth expectations and perceived risk. Generally, higher growth prospects or a more stable earnings outlook justify a higher PE, while riskier or slower-growing companies tend to trade at lower PE multiples.

Currently, Bank of Nova Scotia trades at a PE ratio of 17.8x, which stands notably above the average for Canadian banks (10.4x) as well as the peer average (14.1x). At first glance, this could make the shares appear expensive compared to many industry peers. Yet, Simply Wall St's proprietary “Fair Ratio” for Bank of Nova Scotia is 14.8x. The Fair Ratio takes a more holistic approach, accounting not only for the company’s sector and market cap, but also factors like expected earnings growth, profit margins, and unique risk profile. This provides an apples-to-apples comparison that standard industry or peer benchmarks cannot.

When we compare the current PE (17.8x) to the Fair Ratio (14.8x), the stock appears somewhat expensive on an earnings multiple basis. The gap suggests investors are paying a premium that may require stronger earnings growth or improved risk profile to justify.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1436 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Bank of Nova Scotia Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. Instead of just looking at ratios or analyst targets, a Narrative connects Bank of Nova Scotia’s ongoing story, your perspective on its strategy, risks, and opportunities, with financial forecasts and an estimated fair value. Narratives empower investors to go beyond the headline numbers by forming their own view on how the future will unfold, linking this story directly to revenue and earnings projections and to a fair value calculation.

This approach is simple and accessible via the Community page on Simply Wall St, where millions of investors share and follow Narratives around their own assumptions and beliefs. Narratives help you see how the stories you believe about Bank of Nova Scotia, from digital transformation efforts to international growth or housing market risks, translate into concrete forecasts and buy or sell signals by comparing your Fair Value to the current market Price.

What makes Narratives truly dynamic is how they stay up to date with the latest news and earnings. Your narrative and fair value automatically update as circumstances change. For example, some investors expect Bank of Nova Scotia to reach as high as CA$94.0 per share based on strong digital momentum and international expansion, while others see downside risk to CA$78.0 due to economic headwinds or regulatory concerns. Narratives put you in the driver’s seat to invest according to the story you believe in, with real data and a community behind you.

Do you think there's more to the story for Bank of Nova Scotia? Head over to our Community to see what others are saying!

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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