Does Synchrony Stock Present an Opportunity After Recent 7.1% Decline?

If you have Synchrony Financial on your radar, you are definitely not alone. Deciding what to do with the stock right now might feel like standing at a fork in the road, given the big swings we have seen recently. Over the past month, shares have slipped 7.1%, following a 5.4% dip in just the last week, hinting that investor sentiment is shifting. However, zooming out reveals a different story. The stock is up nearly 172% over the past five years, including a 44.4% gain in the last year alone. Even when considering recent short-term turbulence tied to broader market and sector moves, Synchrony’s long-term track record remains notable.

This raises the question: is the market undervaluing Synchrony Financial right now, or is it identifying new risks that warrant consideration? Based on six key valuation methods, Synchrony scores a 5 out of 6 for being undervalued. This rating suggests there could be potential opportunity amid the recent volatility.

In the next section, I will explain how these valuation checks work, ranging from established ratios to comparative methods. If you are curious about the most effective ways to determine whether a stock is truly undervalued, be sure to continue reading until the end.

Synchrony Financial delivered 44.4% returns over the last year. See how this stacks up to the rest of the Consumer Finance industry.

Approach 1: Synchrony Financial Excess Returns Analysis

The Excess Returns valuation method looks at how much profit a company generates above and beyond the required cost of equity. Essentially, it focuses on what is left after compensating investors for the inherent risk of owning the stock. This model is particularly useful for financial companies as it centers on return on invested capital and growth prospects in the underlying book value and earnings.

For Synchrony Financial, the model estimates its Book Value at $42.29 per share and projects a Stable EPS of $10.01 per share, using weighted future Return on Equity from 13 analysts. The average Return on Equity is an impressive 19.26%, noticeably higher than many industry peers. Synchrony’s cost of equity is calculated at $4.75 per share, leaving an Excess Return of $5.26 per share, which is a sign of efficient capital management. Looking ahead, the Stable Book Value is projected to reach $51.96 per share based on estimates from 9 analysts.

The resulting intrinsic value from this approach is $138.91 per share, which is 49.4% above the recent trading level. This suggests the stock is significantly undervalued when compared to its underlying cash-generating potential and projected growth.

Result: UNDERVALUED

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

Our Excess Returns analysis suggests Synchrony Financial is undervalued by 49.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Synchrony Financial Price vs Earnings

The Price-to-Earnings (PE) ratio is a go-to metric for valuing profitable companies like Synchrony Financial, because it shows how much investors are willing to pay today for a dollar of current earnings. For established businesses with steady earnings, the PE ratio offers a quick pulse of how the market feels about growth prospects and risk, making it ideal for comparing companies within the same industry.

Determining what counts as a "fair" PE ratio depends on several factors. If a company is expected to grow earnings quickly and maintain strong profitability, investors typically assign it a higher PE. Conversely, higher risk, weaker growth, or volatile profits tend to warrant a lower ratio. Context is key, so benchmarks matter. Synchrony Financial’s current PE is 8.16x, which is noticeably lower than the Consumer Finance industry average of 10.14x, and well below the average of its closest peers at 64.41x. This represents a very wide gap that hints at a significant valuation discount.

This is where Simply Wall St's "Fair Ratio" comes in, offering a proprietary benchmark that weighs not just the company's growth and risk but also its profit margin, industry dynamics, and market capitalization. Synchrony’s Fair PE Ratio is calculated at 16.37x, which is tailored to the company’s own characteristics, not just those of line-by-line peers. This smarter approach makes it a more meaningful yardstick for investors.

When you match up the Fair PE Ratio of 16.37x with the actual 8.16x, there is a sizable gap. This suggests that, based on this comprehensive measure, Synchrony Financial is currently undervalued compared to what investors should reasonably expect.

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 Synchrony Financial 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 story about a company, the reasoning and outlook behind your fair value calculation, based on your assumptions for future revenue, profit, and margins.

Rather than just relying on ratios or consensus targets, Narratives let you link your perspective (why you think Synchrony Financial will outperform, struggle, or tread water) directly to your own financial forecasts and estimated fair value. On Simply Wall St’s Community page, used by millions of investors, Narratives make it easy to share, compare, and tweak these stories with intuitive tools. No spreadsheets or complicated models required.

This approach helps you decide what to do: buy if your Narrative’s fair value is well above the current share price, sell if it falls below, or simply wait and watch when prices match. Narratives are continuously updated as news, earnings, or other data roll in, so your story always stays relevant.

For example, some investors see Synchrony Financial’s digital innovation and retail partnerships driving a fair value as high as $100, while others, worried about partner concentration or credit risk, see it closer to $60. Choose the outlook that fits your beliefs and adjust your decisions accordingly.

Do you think there's more to the story for Synchrony Financial? 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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