Is Santander’s Recent 100% Rally Justified After Latest Earnings Growth?

If you’ve been tracking Banco Santander’s stock and wondering what the next move should be, you’re certainly not alone. The stock price closed recently at 8.747, and it has delivered some astonishing returns, especially if you’ve held on for the long haul. In fact, over the past year, shares have rocketed higher by 101.6%, and the five-year return clocks in at an eye-popping 516.5%. That’s not to say the ride has been perfectly smooth. Just last week, the stock dipped by -1.2%, likely reflecting broader market jitters rather than any specific red flag for Santander. Meanwhile, the past month has seen a solid 8.1% gain, and year-to-date the stock is up 98.7%, highlighting renewed confidence and possibly a shift in risk perception across the sector.

While recent market events and changes in investor sentiment play a role, the big question is whether Banco Santander’s stock is actually undervalued, or if prices have outpaced reality. That’s where structured valuation comes in. Based on six different valuation criteria, Santander scores a 4, meaning it’s undervalued on four key checks. But before you jump to conclusions, let’s break down what’s really behind that score by looking at the methods analysts commonly use, and why one evaluation approach might not tell the whole story.

Banco Santander delivered 101.6% returns over the last year. See how this stacks up to the rest of the Banks industry.

Approach 1: Banco Santander Excess Returns Analysis

The Excess Returns model evaluates how much a company earns above its cost of equity. This provides insight into a business’s ability to generate value over and above what shareholders expect for their investment risk. This method is particularly useful for banks, where the primary value creation comes from what they earn on invested capital compared to their capital costs.

For Banco Santander, the current Book Value per share stands at €6.63. The Stable Book Value is projected at €7.77 per share, based on consensus estimates from nine analysts. Earnings per share are also expected to be strong, with a Stable EPS of €0.98, derived from return on equity estimates from 14 analysts. The cost of equity is estimated at €0.74 per share. This results in an excess return, or value created over and above the cost of equity, of €0.24 per share. Santander’s average return on equity is projected at 12.67%, highlighting the group’s consistent profitability and efficient use of shareholder funds.

Using the Excess Returns model, Banco Santander’s estimated intrinsic value per share is €11.13. Compared to the current share price of €8.75, the stock appears 21.4% undervalued.

Result: UNDERVALUED

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

Our Excess Returns analysis suggests Banco Santander is undervalued by 21.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Banco Santander Price vs Earnings

The Price-to-Earnings (PE) ratio is one of the most widely used metrics for valuing profitable companies like Banco Santander. It offers investors a quick way to assess how much they are paying for each euro of the company’s earnings, which is especially relevant for stable, income-generating businesses.

A "normal" or "fair" PE ratio is shaped by several factors. Companies with stronger growth prospects or lower risk profiles usually command higher PE ratios, as investors are willing to pay more for each unit of earnings. Conversely, slower-growing or riskier firms typically have lower PEs, reflecting uncertainty around future profits.

Banco Santander’s current PE ratio stands at 10.3x. This sits just below the banks industry average of 10.4x and slightly under the peer average of 10.4x. However, Simply Wall St uses a proprietary Fair Ratio, which considers Banco Santander’s unique growth outlook, profit margins, size, and the risks it faces. For Santander, the Fair Ratio is calculated at 11.4x, reflecting these company-specific fundamentals.

Unlike a simple comparison to industry or peer averages, the Fair Ratio provides a more tailored valuation because it factors in both strengths and challenges particular to Banco Santander. This approach gives investors a more nuanced sense of whether the current price truly aligns with the company’s future prospects.

Comparing the actual PE of 10.3x to the Fair Ratio of 11.4x, Banco Santander’s shares appear somewhat undervalued, as the market price has not fully caught up with the company’s growth and earnings outlook.

Result: UNDERVALUED

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 Banco Santander Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply an investor’s story, a unique perspective on Banco Santander’s business outlook that connects how they see the company’s strengths, risks, and future performance with real financial forecasts, such as projected revenue, profit margins, or fair value.

Narratives transform investing from just looking at numbers to understanding the why behind them, linking Santander’s story to concrete financial outcomes. They are accessible and easy to use on Simply Wall St’s platform. Millions of investors share their Narratives in the Community page, making it easy for anyone to explore, compare, or even create their own fair value assessment in a few clicks.

Narratives help you decide when to buy or sell by showing how each user’s Fair Value compares to the current Price, and they update automatically as new information, earnings, or news emerges. For example, based on different assumptions, one Santander Narrative sets a fair value at €4.43 per share while another, focusing on global digital growth and expansion, estimates fair value at €8.65. This allows you to see exactly how different viewpoints lead to different investment decisions.

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