Is There Still Opportunity in Commerzbank After Shares Double and ECB Rate Expectations Shift?

Thinking about what to do with your Commerzbank shares, or considering a new position? You’re definitely not alone. Over the years, this stock has kept investors on their toes, and 2024 is proving to be no different. Commerzbank’s share price recently closed at €32.23, and while the past week and month have seen modest declines of -1.5% and -0.7%, the year-to-date numbers are impossible to ignore. So far in 2024, Commerzbank has surged by an incredible 107.1%, and over the past year, the stock has more than doubled, climbing 104.5%. Zoom out to three and five years, and the picture gets even rosier: up 371.5% and 631.8%, respectively.

So what is behind these big gains? Much of the momentum can be traced back to renewed investor optimism about the European banking sector, as shifting interest rate expectations and stabilizing macroeconomic conditions have reduced perceived risks. For long-term holders, Commerzbank’s growth has been spectacular. This serves as a reminder that turnarounds in the financial world can be significant when they catch on.

But with so much of the upside already captured, the perennial question returns: is Commerzbank still undervalued, or has the easy money already been made? According to our analysis using six key valuation checks, the company is undervalued on just two fronts, giving it a value score of 2. In a moment, we will break down these different valuation approaches and explore how they stack up. Keep reading for a deeper look at each method and stay tuned for an even smarter way to think about true value, coming up at the end.

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

Approach 1: Commerzbank Excess Returns Analysis

The Excess Returns valuation model estimates a company's intrinsic value by assessing how effectively it generates profits from its equity, after deducting the cost of that equity. In other words, it seeks to measure the "extra" value created above the minimum required by capital providers, which can be a useful way to evaluate banks like Commerzbank, where traditional cash flow models often fall short.

According to the latest data, Commerzbank’s Book Value stands at €30.01 per share, with a Stable Earnings Per Share (EPS) of €3.06, as projected by the consensus of 12 analysts. The average Return on Equity (ROE) is a healthy 10.46%, and the Stable Book Value estimate is €29.28 per share, sourced from 6 analyst forecasts. Commerzbank’s cost of equity is €1.77 per share, while its calculated Excess Return is €1.29 per share.

This methodology yields an intrinsic value of €56.82 per share. With the current share price at €32.23, the model suggests that Commerzbank is trading at a significant 43.3% discount to its fair value. This indicates an unusually high margin of safety for investors at today’s prices.

Result: UNDERVALUED

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

Our Excess Returns analysis suggests Commerzbank is undervalued by 43.3%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Commerzbank Price vs Earnings

The Price-to-Earnings (PE) ratio is the most popular valuation tool for profitable companies because it links a company’s current share price to per-share earnings, reflecting both profitability and market sentiment. Especially for banks, where stable earnings play a major role, PE provides a clear window into investor expectations.

What constitutes a “normal” or “fair” PE ratio varies according to growth prospects and perceived risks. High-growth or lower-risk businesses typically command higher PE multiples, while those facing more uncertainty or limited expansion trade at lower ratios.

For Commerzbank, the current PE ratio stands at 15x. This is noticeably above both the industry average of 10.3x and the average among its immediate peers at 10.4x. However, Simply Wall St’s proprietary Fair Ratio model, which factors in unique elements like expected earnings growth, profit margins, industry trends, company size, and risk profile, assigns Commerzbank a Fair PE Ratio of 14.39x. Unlike the blunt comparison to peers or broad industry averages, the Fair Ratio provides a tailored benchmark that aligns with the company’s specific circumstances.

Comparing Commerzbank’s current 15x PE to its Fair Ratio of 14.39x, the stock appears close to fairly valued, trading just slightly above its expected range for a bank of its profile.

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 Commerzbank Narrative

Earlier we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply your story about a company, not just the numbers, but what you believe about its future: growth prospects, challenges, and how the business is run. Narratives let you connect your understanding of Commerzbank (for example, its digital transformation progress or exposure to ESG finance) directly to your forecasts for revenue, earnings, and margins, and from there, to a personalized fair value.

This approach makes investing more accessible and real. On Simply Wall St’s Community page, millions of investors are already publishing and discussing their own Narratives for companies like Commerzbank. When you build yours, it is instantly compared to the current market price, so you can easily decide if you think a stock is undervalued or overpriced and whether it is time to buy, hold, or sell.

Best of all, Narratives update automatically as new news or financials come in, keeping your view relevant without any extra effort. For example, among users sharing their Narratives for Commerzbank, some are forecasting a bullish price target near €36.10 based on robust digital and green finance growth, while more cautious investors see fair value closer to €21.00, reflecting downside risks. Your Narrative, your view, right at your fingertips.

Do you think there's more to the story for Commerzbank? 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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