Is There Now An Opportunity In The Bank of Nova Scotia (TSE:BNS)?

By
Simply Wall St
Published
October 30, 2019
TSX:BNS
Source: Shutterstock

Let's talk about the popular The Bank of Nova Scotia (TSE:BNS). The company's shares saw a decent share price growth in the teens level on the TSX over the last few months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Bank of Nova Scotia’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Bank of Nova Scotia

What is Bank of Nova Scotia worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 17% below my intrinsic value, which means if you buy Bank of Nova Scotia today, you’d be paying a fair price for it. And if you believe the company’s true value is CA$91.79, then there isn’t much room for the share price grow beyond what it’s currently trading. Although, there may be an opportunity to buy in the future. This is because Bank of Nova Scotia’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from Bank of Nova Scotia?

TSX:BNS Past and Future Earnings, October 31st 2019
TSX:BNS Past and Future Earnings, October 31st 2019

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by a double-digit 11% in the upcoming year, the short-term outlook is positive for Bank of Nova Scotia. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? It seems like the market has already priced in BNS’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on BNS, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Bank of Nova Scotia. You can find everything you need to know about Bank of Nova Scotia in the latest infographic research report. If you are no longer interested in Bank of Nova Scotia, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

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