Bank of America (BAC) Shares Fall 0.9% Today -- Is This a Bargain?

Bank of America was one of the market's biggest losers today, losing -0.9% of its value and underperforming the S&P500 and Dow Industrial composite indices by 0.1% and -0.8% respectively. The large-cap Financial Services company ended the day at $38.49, but is still well above its 52 week low of $29.31 and is 6.35% below its average target price of $41.1. Over the last 12 months, Bank of America is down -18.7%, and has underperformed the S&P 500 by 3.2%. The stock has an average analyst rating of buy.

Bank of America has a trailing 12 month price to earnings (P/E) ratio of 12.2, which corresponds to its share price divided by its trailing earnings per share (Eps) of $3.16. The company's forward P/E ratio is 10.3 based on its forward Eps of $3.72.

Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. By way of comparison, the Financial Services sector has historically had an average P/E ratio of 13.34. Whether the company's P/E ratio is within a high or low range tells us how investors are currently valuing the stock's earning potential, but it doesn't tell us how its price will move in the future.

Another metric for valuing a stock is its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the sum of all of the company's tangible assets and liabilities. Bank of America's P/B ratio of 1.3 indicates that the company is fairly valued when compared to the Financial Services sector's average P/B ratio of 1.95.

Much about the past and future prospects of the business are revealed by its profit margins. Since financial companies usually have no or little cost of goods sold, the profitability of the business is best viewed through the lens of operating margins, which take into account overhead. In Bank of America's case, its annual reports reveal the following operating margins information:

Date Reported Total Revenue ($) Operating Expenses ($) Operating Margins (%) YoY Growth (%)
2021-12-31 93,707,000,000.0 59,731,000,000.0 36.26 41.64
2020-12-31 74,208,000,000.0 55,213,000,000.0 25.6 -33.11
2019-12-31 85,582,000,000.0 52,828,000,000.0 38.27 -2.92
2018-12-31 87,738,000,000.0 53,154,000,000.0 39.42 n/a
  • Average operating margins: 34.9 %
  • Average operating margins growth rate: 1.9 %
  • Coefficient of variability (lower numbers indicate less volatility): 18.1 %

Fundamentally, Bank of America is profitable since its operating margins have on average been positive. However, a positive growth rate and consistency are the true hallmarks of a sound business so it's important to consider the average in context..

To get a better idea of Bank of America's finances, we will now look at its cash flows. Often touted as a general yardstick for a company's financial health, cash flows represent the sum of inflows and outflows of cash from all sources, including capital expenses:

Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2021-12-31 -7,193,000,000.0 n/a -7,193,000,000.0 -118.93
2020-12-31 37,993,000,000.0 n/a 37,993,000,000.0 -38.5
2019-12-31 61,777,000,000.0 n/a 61,777,000,000.0 56.32
2018-12-31 39,520,000,000.0 n/a 39,520,000,000.0 n/a
  • Average free cash flow: $-7,193,000,000.00
  • Average free cash flow growth rate: -33.7 %
  • Coefficient of variability (lower numbers indicating more stability): 87.6%

This is the pool of liquidity that the company can use to reinvest in its business and to pay its equity investors a dividend. Over the last twelve months investors in Bank of America have enjoyed a dividend yield of 2.2%, but with its negative recent cash flows, the company may not be able to keep this up.

Overall, Bank of America seems to be a strong business with an attractive valuation in numeric terms. Potential investors may want to take a closer look at the stock, and focus on whether it also has qualitative factors that show that it can provide solid returns. For more daily equity reports, make sure to subscribe to our free newsletter!

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.