Is There Now An Opportunity In Bank of America Corporation (NYSE:BAC)?

By
Simply Wall St
Published
May 28, 2020
NYSE:BAC

Bank of America Corporation (NYSE:BAC) received a lot of attention from a substantial price increase on the NYSE over the last few months. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s take a look at Bank of America’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for Bank of America

Is Bank of America still cheap?

Bank of America appears to be overvalued by 46% at the moment, based on my discounted cash flow valuation. The stock is currently priced at US$25.98 on the market compared to my intrinsic value of $17.81. This means that the opportunity to buy Bank of America at a good price has disappeared! If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Bank of America’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Bank of America?

NYSE:BAC Past and Future Earnings May 28th 2020
NYSE:BAC Past and Future Earnings May 28th 2020

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a negative profit growth of -15% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Bank of America. This certainty tips the risk-return scale towards higher risk.

What this means for you:

Are you a shareholder? If you believe BAC is currently trading above its value, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the risk from a negative growth outlook, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on BAC for a while, now may not be the best time to enter into the stock. Price climbed passed its true value, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Should the price fall in the future, will you be well-informed enough to buy?

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Bank of America. You can find everything you need to know about Bank of America in the latest infographic research report. If you are no longer interested in Bank of America, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. 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. Thank you for reading.

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