Is It Too Late To Consider BNP Paribas After A 53% One Year Surge?

• If you are wondering whether BNP Paribas is still good value after a strong run, you are not alone. This article is going to unpack what is really priced into the shares today.
• The stock has climbed to around €80.24, with returns of 2.0% over the last week, 20.3% over the last month, 35.4% year to date and an impressive 52.8% over the past year. This naturally raises the question of how much upside might be left.
• Recently, the market has focused on BNP Paribas strategic push in European retail and corporate banking and its plans to streamline operations while investing in digital capabilities. At the same time, regulatory developments around capital requirements and interest rate expectations have been reshaping how investors think about risk and profitability for large eurozone banks.
• Right now, BNP Paribas scores a 4 out of 6 on our valuation checks, suggesting the shares look undervalued on several, but not all, traditional measures. Next, we will walk through those methods before finishing with a more holistic way to think about what the stock is truly worth.

Find out why BNP Paribas's 52.8% return over the last year is lagging behind its peers.

Approach 1: BNP Paribas Excess Returns Analysis

The Excess Returns model looks at how much profit a bank can generate over and above the return that shareholders demand for the risk they are taking. Instead of focusing on near term earnings, it asks whether BNP Paribas can consistently earn attractive returns on its equity base and grow that equity over time.

For BNP Paribas, the starting point is a Book Value of €111.07 per share and a Stable EPS of €11.99 per share, based on weighted future Return on Equity estimates from 14 analysts. The Average Return on Equity is 10.43%, while the Cost of Equity is higher at €14.14 per share, leading to an Excess Return of €-2.14 per share. Analysts also expect Stable Book Value to edge up to €114.95 per share, based on forecasts from 9 analysts.

Putting these inputs into the Excess Returns framework yields an intrinsic value of about €93.93 per share. Versus the current price of roughly €80.24, the model suggests the stock is about 14.6% undervalued, which indicates the market is still cautious about BNP Paribas ability to turn its equity base into high quality profits.

Result: UNDERVALUED

Our Excess Returns analysis suggests BNP Paribas is undervalued by 14.6%. Track this in your watchlist or portfolio, or discover 918 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 BNP Paribas.

Approach 2: BNP Paribas Price vs Earnings

For a profitable bank like BNP Paribas, the price to earnings ratio is a straightforward way to gauge whether investors are paying a reasonable price for each euro of profit. In general, faster growing and less risky companies deserve a higher PE, while slower growth, more cyclical or riskier names usually trade on lower multiples.

BNP Paribas currently trades on a PE of about 8.17x, which is below both the broader Banks industry average of roughly 10.87x and the peer group average of around 11.36x. Simply Wall St also calculates a Fair Ratio of 8.40x, its proprietary estimate of what a normal PE should be for BNP Paribas once you account for earnings growth prospects, profitability, risk profile, industry and market cap.

This Fair Ratio is more tailored than a simple comparison with peers or the sector, because it adjusts for the specific strengths and risk factors of BNP Paribas rather than assuming all banks deserve the same valuation. With the current PE only slightly below the Fair Ratio, the shares look modestly cheap but broadly aligned with what the fundamentals justify.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1460 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your BNP Paribas Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to attach your own story about BNP Paribas future to concrete numbers like revenue growth, margins, earnings and fair value, all within the Community page on Simply Wall St that millions of investors use.

A Narrative connects three pieces together in one place: what you believe will actually shape the business, how that flows through a forecast of future finances, and what you think a fair value is relative to today’s share price.

This can make it easier to decide whether to buy, hold or sell, because you can compare the fair value from your Narrative with the current market price and see whether your story implies upside or downside.

Narratives also update dynamically when new information arrives, such as earnings reports or major news, so your view of BNP Paribas is based on the latest data rather than a static snapshot.

For example, one investor might build a Narrative that results in a value closer to €100 per share, based on a positive view of digital initiatives and capital allocation, while another might arrive at a value nearer to €77 per share, based on a more conservative view of the operating environment and regulation.

Do you think there's more to the story for BNP Paribas? 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com