Assessing Banco BPM After Shares Surge Over 140% and Amid Renewed M&A Speculation

If you are eyeing Banco BPM and wondering whether now is the right moment to hold, buy, or walk away, you are definitely not alone. The stock has been turning heads with a run that’s hard to ignore, both for long-term investors and those looking for shorter-term momentum. Over the last week, shares are up 2.4%, and if you zoom out, the last month has brought an impressive 12.4% lift. But the real story lies in the bigger picture: since the start of the year, Banco BPM has shot up 66.3%, and over the last year, the stock has delivered a staggering 144.3% return. Looking even further back, its five-year climb stands at over 1,000%. This suggests shifts in investor confidence and, perhaps, changes in the underlying business or risk perception for Italy’s banking sector.

Much of this upward momentum has followed market-wide optimism about European financials. Factors like policy changes, stabilizing macro conditions, and rebalancing of risk in the sector have all contributed to the bullish vibe. While some stocks move on hype, Banco BPM’s progress is also reflected in its valuation metrics. On a 6-point scale, where each check of undervaluation scores a point, Banco BPM sits at a 3, which means it is undervalued in half of the metrics that matter.

So, is Banco BPM really as attractively valued as these numbers suggest? Let’s break down the main valuation measures used by the market, and stay tuned, because there is an even more insightful way to size up Banco BPM’s true worth coming up at the end of this article.

Banco BPM delivered 144.3% returns over the last year. See how this stacks up to the rest of the Banks industry.

Approach 1: Banco BPM Excess Returns Analysis

The Excess Returns valuation model is designed to estimate a bank’s true worth by assessing how much profit it generates above the required cost of equity. Instead of simply focusing on earnings or cash flows, this approach highlights the bank’s ability to produce returns on invested capital beyond what investors require for taking on risk.

For Banco BPM, this method brings several key figures into focus:

• Book Value: €10.16 per share
• Stable Earnings Per Share (EPS): €1.35 per share (Source: Weighted future Return on Equity estimates from 11 analysts.)
• Cost of Equity: €1.10 per share
• Excess Return: €0.25 per share
• Average Return on Equity: 13.69%
• Stable Book Value: €9.85 per share (Source: Weighted future Book Value estimates from 9 analysts.)

According to the Excess Returns model, the estimated intrinsic value for Banco BPM is €12.89 per share. This is only about 0.2% higher than its current trading price, indicating the stock is very close to fair value. In summary, Banco BPM is priced in line with its recent performance and future return potential according to this model.

Result: ABOUT RIGHT

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

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Banco BPM's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Banco BPM Price vs Earnings

The Price-to-Earnings (PE) ratio is a favored tool for valuing profitable banks like Banco BPM. When a company generates consistent profits, the PE ratio can give a clear view of how much investors are willing to pay today for every euro of earnings. Growth prospects and risk appetite play a big role in what counts as a "fair" PE: higher growth or lower risk typically commands a higher PE multiple, while a riskier or slower-growing company will see a lower one.

Banco BPM currently trades at a PE ratio of 8.1x. That sits below the average for both its major Italian and European banking rivals, which have a peer average PE of 13.3x and an industry average of 10.3x. On first glance, this suggests Banco BPM is attractively priced, but direct comparisons have their limitations since they rarely account for all the nuanced factors that make each bank unique.

This is where Simply Wall St’s “Fair Ratio” comes in. The Fair Ratio, calculated at 8.9x for Banco BPM, weighs up the company’s earnings growth, profit margins, industry, market cap, and risk profile to estimate what its PE ratio should reasonably be. This tailored approach offers a more meaningful benchmark than a basic peer or industry comparison. With Banco BPM’s actual PE (8.1x) so close to the Fair Ratio (8.9x), the stock appears to be priced about right relative to its fundamentals.

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 Banco BPM 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 your own story for a company, combining your perspective on its future prospects, your fair value estimate, and assumptions about things like revenue, earnings, and profit margins. Narratives help you connect a company’s unique story to real financial forecasts and a calculated fair value, all tailored to how you see the business evolving.

Narratives make investing easier and more personal. On Simply Wall St’s Community page, millions of investors use them to express their view of a stock and directly see how their story stacks up against others. When you create or follow a Narrative, you can quickly compare its calculated Fair Value to the current Price to decide if it’s time to buy, hold, or sell. Narratives are dynamic and update as soon as new information, like news or earnings, comes in, so your outlook stays up to date.

For Banco BPM, different investors might see very different futures. For example, one Narrative could be built on a fair value of €13.3 per share based on aggressive growth expectations, while another could be more cautious, landing at €10.4 if risks around M&A and fintech disruption are front of mind.

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