Commercial Banking company NatWest is taking Wall Street by surprise today, falling to $6.28 and marking a -4.8% change compared to the S&P 500, which moved -0.0%. NWG is -36.29% below its average analyst target price of $9.85, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, NatWest has underperfomed the S&P 500 by -6.0%, moving 11.0%.
NatWest Group plc, together with its subsidiaries, provides banking and financial products and services to personal, commercial, corporate, and institutional customers in the United Kingdom and internationally. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.
NatWest's trailing 12 month P/E ratio is 6.0. It does not have a forward P/E ratio because the company does not issue guidance. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the finance sector has an average P/E ratio of 14.34, and the average for the S&P 500 is 15.97.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in NatWest's free cash flow, which was $-43597000000.0 as of its most recent annual report. The balance of cash flows represents the capital that is available for re-investment in the business, or for payouts to equity investors as dividends. The company's average cash flow over the last 4 years has been $8.87 Billion and they've been growing at an average rate of -85.4%. NWG's weak free cash flow trend shows that it might not be able to sustain its dividend payments, which over the last 12 months has yielded 2.1% to investors. Cutting the dividend can compound a company's problems by causing investors to sell their shares, which further pushes down its stock price.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Natwest's P/B ratio of 0.8 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock. The average P/B ratio of the Finance sector was 1.57 as of the first quarter of 2023.
NatWest is likely undervalued at today's prices because it has a very low P/E ratio, an exceptionally low P/B ratio, and irregular cash flows with a downwards trend. The stock has mixed growth prospects because of its decent net margins with a stable trend, and a PEG ratio of less than 1. We hope this preliminary analysis will encourage you to do your own research into NWG's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
