We've been asking ourselves recently if the market has placed a fair valuation on Wells Fargo & Company. Let's dive into some of the fundamental values of this large-cap Financial Services company to determine if there might be an opportunity here for value-minded investors.
Wells Fargo & Company is an American multinational financial services company with corporate headquarters in San Francisco, California, operational headquarters in Manhattan, and managerial offices throughout the United States and overseas. The company belongs to the Financial Services sector, which has an average price to earnings (P/E) ratio of 14.34 and an average price to book (P/B) ratio of 1.57. In contrast, Wells Fargo & Company has a trailing 12 month P/E ratio of 14.95 and a P/B ratio of 1.029.
P/B ratios are calculated by dividing the company's market value by its equity's book value. Equity refers to all of the company's assets minus its liabilities. Traditionally, a P/B ratio of around 1 shows that a company is fairly valued, but owing to consistently higher valuations in the modern era, investors generally compare against sector averages.
When we divideWells Fargo & Company's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.17, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
