47% under ‘fair’ value, with 9% annual forecast earnings growth! 1 FTSE 100 gem to buy today?

FTSE 100 emerging-markets specialist bank Standard Chartered (LSE: STAN) is down 18% from its 3 February one-year high of £19.24. This might indicate a bargain to be had, but it depends on how much value is left in the stock.

These two measures — price and value — are not the same thing in stocks. The former is simply whatever the market will pay at any point, while the latter reflects the underlying business’s fundamentals.

The difference between the two is where savvy long-term investors can make big profits. This is because all asset prices, including shares, tend to converge to their ‘fair value’ over time — up or down.

How does the core business look?

Earnings are the key driver for any firm’s share price over the long run. A risk to Standard Chartered is any deterioration in the US-China relationship, as this might affect Asia’s economic growth. Another is litigation arising from compliance issues in any of its key markets. Nevertheless, analysts forecast that the bank’s earnings will rise by a yearly average of 9% over the medium term.

This looks well-founded, based on recent results, including the full-year 2025 numbers. Underlying profit before taxation rose 16% year on year to $7.9bn (£5.9bn). It highlights the bank’s ability to grow earnings across its core corporate, trade and wealth franchises rather than relying on a single cyclical tailwind.

Operating income increased 7% to $20.9bn, underlining continued momentum in its cross‑border and wealth‑led strategy. Within that, non‑interest income rose 13% to $9.7bn, illustrating the growing contribution from fee‑based businesses such as Wealth Solutions, Global Banking and Global Markets.

Meanwhile, the cost‑to‑income ratio improved by 80 basis points to 59.1%, highlighting improving operating leverage. Crucially, return on tangible equity (ROTE) — a key profitability metric for banks that signals structurally higher returns on capital — rose 300bps to 14.7%.

Are the shares undervalued?

Discounted cash flow analysis identifies the price at which any stock should trade by projecting future cash flows and ‘discounting’ them back to today.

Different analysts will reach different conclusions based on the assumptions they use and they could come up with a lower fair value than I do. But my DCF modelling (which uses an 8.4% discount rate, among other inputs) shows Standard Chartered’s shares are around 47% undervalued at the current £15.86 price.

That suggests a fair value of around £29.92 — significantly higher than where the stock trades today. The gap suggests a potentially terrific buying opportunity if those DCF assumptions prove right.

Secondary confirmations of this undervaluation are also evident in relative valuations with peers. Notably, for example, the bank’s 2.4 price-to-sales ratio is well below its competitors’ average of 3. This group comprises Barclays at 2, NatWest at 2.7, Lloyds at 3, and HSBC at 4.4.

My investment view

Standard Chartered’s shares look deeply underpriced to me relative to its improving earnings power. Double‑digit profit growth, rising ROTE and an increasingly fee‑led business mix support a sustainably higher valuation. Consequently, I think it well worth the consideration of long-term investors.

For me, owning another banking stock (I already hold HSBC and NatWest) would unbalance my portfolio’s risk/reward balance. So, I will not be buying it at the moment. But I am looking at other deeply discounted growth stocks, some with high dividend yields too.

The post 47% under ‘fair’ value, with 9% annual forecast earnings growth! 1 FTSE 100 gem to buy today? appeared first on The Motley Fool UK.

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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 Barclays Plc, HSBC Holdings, Lloyds Banking Group Plc, 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.

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