Should Investors Revisit East West After Recent Lending Growth News and Strong Price Gains?

Deciding whether to stay invested in or take a fresh look at East West Bancorp is on the minds of many savvy investors right now. With a closing price of $108.36, the stock has delivered gains that outpace much of the broader market, jumping 14.7% year-to-date and an impressive 36.2% over the last 12 months. If you have been watching the steady climb, including a remarkable 265.9% over the past five years, it is worth asking whether the current price offers more room to run or signals a time to be cautious.

Notice that after a solid 30-day stretch with a 1.9% return, there has been a slight dip of -0.5% in the last week. This small pullback follows news of industry-wide optimism regarding regional banks' lending activity, partly offsetting ongoing concerns about regulatory shifts. While the stock's momentum remains positive, the market has started looking harder at risks alongside growth potential.

For those thinking about value, East West Bancorp stands out with a valuation score of 4 out of 6, indicating the company appears undervalued in four key checks. That is a strong signal, but how reliable are these measures, and what do they really tell us about whether the stock is still a buy? Let's break down the major valuation approaches typically used, and see which ones matter most for East West Bancorp. Plus, we will dig into a smarter, more comprehensive way to judge value toward the end of this article.

East West Bancorp delivered 36.2% returns over the last year. See how this stacks up to the rest of the Banks industry.

Approach 1: East West Bancorp Excess Returns Analysis

The Excess Returns valuation approach centers on assessing how effectively a company generates returns on its invested equity capital, beyond the baseline "cost of equity" set by the market. In essence, it looks at how much value East West Bancorp creates through its core banking business, relative to what investors require as compensation for investing in its shares.

For East West Bancorp, the numbers are compelling. The company boasts a Book Value of $59.51 per share and a Stable Earnings Per Share (EPS) of $10.19, based on weighted future estimates from 12 analysts. The cost of equity, or the required return investors expect, is $4.64 per share. This means the business is generating an Excess Return of $5.55 per share. Over the long term, East West Bancorp is projected to maintain an average Return on Equity of 14.89%, with its stable Book Value anticipated to reach $68.43 per share according to consensus from 9 analysts.

When all these factors are modeled, the Excess Returns approach calculates an intrinsic value of $218.61 per share. With the current share price sitting at $108.36, this suggests a massive 50.4% discount, indicating the stock is significantly undervalued relative to its return-generating power.

Result: UNDERVALUED

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

Our Excess Returns analysis suggests East West Bancorp is undervalued by 50.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: East West Bancorp Price vs Earnings

For profitable companies like East West Bancorp, the Price-to-Earnings (PE) ratio is a widely used and straightforward metric to gauge valuation. The PE ratio summarizes what investors are willing to pay today for each dollar of earnings, making it especially relevant for banks where profits are reliable and fairly stable.

Growth expectations and risk play a large part in what constitutes a "normal" or "fair" PE. A higher PE can signal strong anticipated future growth or lower perceived risk. Conversely, a lower PE may point to subdued growth prospects or higher risk. East West Bancorp is currently trading at a PE of 12.5x, which is above the average of the wider banking industry at 11.9x but below the 15.2x peer average.

To go deeper than broad benchmarks, Simply Wall St’s proprietary “Fair Ratio” offers a more nuanced view. The Fair Ratio, calculated at 13.8x for East West Bancorp, tailors its assessment to factors such as the company’s earnings growth, margins, size, and specific risks. This makes it a superior yardstick compared to plain peer or industry averages.

Given East West Bancorp's actual PE of 12.5x is modestly below its Fair Ratio of 13.8x, this analysis suggests the stock is undervalued on this basis, offering somewhat more upside for value-focused investors.

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 East West Bancorp Narrative

As promised earlier, there is an even better way to understand a stock’s true value and opportunity. Meet Narratives. A Narrative is your story about a company, combining your view of its future with concrete numbers like fair value estimates, future revenue, earnings, and margins. By linking East West Bancorp’s story (such as strength in US-China cross-border banking or digital strategy) directly to a forecast and fair value, Narratives help you make sense of the "why" behind the numbers.

This approach is simple and powerful, and it is easy to access. Simply Wall St’s Community page lets millions of real investors create, refine, and share their own Narratives as markets change. Narratives help you decide when to buy or sell by comparing your unique Fair Value with today’s share price, and automatically update as news or new earnings arrive. For example, one bullish Narrative for East West Bancorp expects revenue to reach $3.3 billion and a price target of $140, focusing on digital investment and cross-border growth, while a more cautious view targets $104 due to concerns about commercial real estate exposure and regulatory costs. By exploring these different stories, you can confidently weigh upside and risk in a way that fits your outlook. Do you think there's more to the story for East West Bancorp? 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.

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