Despite trading around a 12-year high, this FTSE 100 bank stock still looks like a bargain-basement gem to me
FTSE 100 emerging markets specialist bank Standard Chartered (LSE: STAN) is on a strong bullish price run. In fact, it is trading around prices not witnessed since early December 2013.
Some investors might see this trend as unstoppable and seek to jump on the buying bandwagon. Others may think it cannot possibly continue much longer and avoid the stock.
Neither view is conducive to making big long-term profits from stock investment, in my experience. This comprises three decades as a private investor and several years as a senior investment bank trader before that.
The only question I ask in such a situation is whether there is any value left in the share. So, is there in this case?
The valuation proposition
The best way I have found to ascertain whether value remains in a share is the discounted cash flow method. This pinpoints where any stock price should trade, derived from cash flow forecasts for the underlying business.
In Standard Charteredâs case, it shows the shares are 32% undervalued at their current £14.49 price.
Therefore, their fair value is £21.31.
Secondary confirmations of this under-pricing are also seen in comparative valuations with its peers.
For example, the bankâs 2.2 price-to-sales ratio is joint lowest in its competitor group, which averages 3. These banks consist of Barclays at 2.2, Lloyds at 2.7, NatWest at 2.8, and HSBC at 4.3.
Standard Chartered is also cheap on the price-to-earnings ratio, trading at 10 against a peer average of 10.7.
And the same applies to its 0.9 price-to-book ratio against the 1.1 average of its competitor group.
How does the underlying business look?
As the interest rate forecasts in key Western markets declined, Standard Chartered modified its business strategy. It placed more emphasis on expanding its fee-based business rather than on its interest-based operations.
Consequently, Q1 2025 results saw year-on-year double-digit income increases in its fee-based Wealth Solutions, Global Markets and Global Banking operations. This helped power a 12% jump in underlying profit before tax of $2.3bn (£1.7bn) over the period.
In Q2, income growth in Wealth Solutions surged 20%, in Global Markets 47%, and in Global Banking 12%. This drove a 34% surge in underlying profit before tax over the quarter of $2.4bn.
A risk here is a global economic slowdown, perhaps as a result of uncertainty over US tariffs. After all, any bankâs business broadly reflects the economic health of the countries in which it operates.
However, consensus analystsâ forecasts are that Standard Charteredâs earnings will rise by 5.6% a year to end-2027. And it is precisely this growth that drives any companyâs share price (and dividends) over time.
My investment view
I already own shares in HSBC and NatWest, and having another would unbalance my portfolio.
But I do not wish to sell either of them, as they are performing well. They also have higher dividend yields than Standard Chartered, which is important to me as I am aged over 50. This means I am looking to maximise my dividend income so I can keep reducing my working commitments.
That said, given its strong results, solid earnings growth prospects and significant undervaluation, I think Standard Chartered is well worth other investorsâ consideration.
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HSBC Holdings is an advertising partner of Motley Fool Money. Simon Watkins has positions in HSBC Holdings and NatWest Group Plc. The Motley Fool UK has recommended HSBC Holdings and Standard Chartered Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
