Commercial Banking company NatWest is taking Wall Street by surprise today, falling to $13.94 and marking a -4.5% change compared to the S&P 500, which moved -1.0%.
NWG currently sits within range of its analyst target price of $14.32, which implies that its price may remain stable for the near future. Over the last year, NatWest shares have outstripped the S&P 500 by 43.2%, with a price change of 58.4%.
NatWest Group plc, together with its subsidiaries, provides banking and financial products and services 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 8.8, based on its trailing EPS of $1.58. The company has a forward P/E ratio of 12.2 according to its forward EPS of $1.14 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US finance companies is 15.92, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
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 $1.77 Billion 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 $3.41 Billion and they've been growing at an average rate of -32.9%. 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 1.7% 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.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Natwest's P/B ratio is 3.14 -- in other words, the market value of the company exceeds its book value by a factor of more than 3, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.78 as of the third quarter of 2024.
Since it has a Very low P/E ratio, an average P/B ratio, and positive cash flows with a downwards trend, NatWest is likely overvalued at today's prices. The company has poor growth indicators because of a PEG ratio of less than 1 and weak net margins with a stable trend. We hope you enjoyed this overview of NWG's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
