The reason to look at company ratios is that the stock price for a company tells you very little. The price of a stock certainly does not tell you if the stock is cheap or expensive. For example a stock price of $10 on one stock could be an expensive price, but a stock price of $20 on another stock could be a cheap price. It is like all stocks have their own currency and you will need a common frame of reference in order to tell how cheap or expensive a stock is. My Spreadsheet is here.
The method I like best to check for a good stock price is dividend yield and this against the historical median dividend yield. Of the big banks that I follow, the Bank of Nova Scotia comes off well in this test. Actually all the banks do because their prices have fallen lately.
My next favourite test is using the Graham Price. Of the big banks I follow, the Royal Bank is relatively lower with the current Price/Graham Price Ratio some 25% below its historical median P/GP Ratio.
In this entry I am just looking at mostly just the Canadian Banks that I follow. Of course it is not complete without CIBC and Canadian Western Bank but I really have no motivations to start to follow these banks. I have 3 bank stocks already of BMO, RY and TD. My son owns BNS. I thought it might be fun to look at a small Canadian bank, so I have Nation Bank.
I do not think I would ever buy CIBC (TSX-CM, NYSE-CM) or Canadian Western Bank (TSX-CWB, OTC-CBWBF). I will include similar data for these banks where I can find it. I try to get the right information, but I cannot guarantee anything.
One of the most common ratios to look at is the P/E Ratio. When dealing with P/E Ratios, the lower the P/E ratio the better the relatively price is. Below is the 10 year low, median and high median P/E Ratios for each bank I follow. Basically what this chart tells you is that investors are willing to pay relatively more money for TD Bank shares than for other banks. Last year when I looked at this data, RY was tied with TD Bank.
| Bank | Symbol | Low P/E | Median P/E | High P/E |
|---|---|---|---|---|
| Bank of Montreal | BMO | 10.07 | 11.34 | 12.10 |
| Bank of Nova Scotia | BNS | 10.64 | 11.63 | 12.50 |
| Royal Bank | RY | 10.51 | 11.44 | 12.68 |
| National Bank | NA | 9.04 | 10.62 | 11.89 |
| TD Bank | TD | 11.40 | 12.63 | 13.69 |
So what is the relatively cheapest bank today? Currently National Bank has the lower P/E. In the last column I am comparing the Historical Median P/E with the Current P/E. This shows that National Bank has dropped the most from its median. The National Bank has fallen a lot recently. If you want one of the big 5, BNS has also dropped a lot from its median value.
| Bank | Symbol | Price | 2016 EPS Est. | Curr P/E | M/C |
|---|---|---|---|---|---|
| Canadian Western Bank | CWB | $22.45 | $2.65 | 8.47 | |
| CIBC | CM | $90.27 | $9.58 | 9.42 | |
| Bank of Montreal | BMO | $74.41 | $6.99 | 10.65 | -6.13% |
| Bank of Nova Scotia | BNS | $56.33 | $5.91 | 9.53 | -18.05% |
| Royal Bank | RY | $70.74 | $6.84 | 10.34 | -9.60% |
| National Bank | NA | $38.70 | $4.78 | 8.10 | -23.76% |
| TD Bank | TD | $52.43 | $4.75 | 11.04 | -12.61% |
The next most common ratio is the Price/Book Value per Share Ratio. For Price/Book Value per Share Ratio, the lower the P/B Ratio is, the more book value you get for your money. Theoretically, the book value is the difference between assets and liabilities and therefore is the potential value a company is worth or the breakup value of the stock for the shareholders.
When valuing a stock, the lower the P/B Ratio is, the better the stock price is on a relative basis. The 10 year median P/B Ratios for our banks are below. From this it is obvious that historically, investors were willing to pay a relatively higher price for Royal Bank shares than other shares. It could also say that the Bank of Montreal offers the best deal when it comes to Book Value per Share.
Last year, except for National Bank, all the 10 year P/B Ratios for these banks were higher. On a relative basis, investors were still willing to pay a relatively higher price of the Royal Bank shares and Bank of Montreal was still the best deal with it come to Book Value per Share.
| Bank | Symbol | P/B Ratio |
|---|---|---|
| Bank of Montreal | BMO | 1.57 |
| Bank of Nova Scotia | BNS | 2.07 |
| Royal Bank | RY | 2.16 |
| National Bank | NA | 1.79 |
| TD Bank | TD | 1.67 |
At present all the banks P/B Ratios are below their 10 year P/B Ratios. CWB's price is below is book value. Of the banks I follow, BMO has the lowest P/B Ratio and the Royal Banks is the lowest relative to its 10 year P/B Ratio as its current P/B Ratio is some 17% lower than the 10 year P/B Ratio.
| Bank | Symbol | Price | BVPS | Current P/B | M/C |
|---|---|---|---|---|---|
| Canadian Western Bank | CWB | $22.45 | $23.73 | 0.95 | |
| CIBC | CM | $90.27 | $53.76 | 1.68 | |
| Bank of Montreal | BMO | $74.41 | $56.31 | 1.32 | -15.83% |
| Bank of Nova Scotia | BNS | $56.33 | $29.30 | 1.92 | -7.14% |
| Royal Bank | RY | $70.74 | $39.52 | 1.79 | -17.13% |
| National Bank | NA | $38.70 | $23.54 | 1.64 | -8.17% |
| TD Bank | TD | $52.43 | $33.79 | 1.55 | -7.08% |
For dividend paying stocks, the Dividend Payout Ratios are important. For the DPRs, lower ratios are better ratios. For Banks the DPR for EPS is the most important one. When looking at these ratios, it would appear that Canadian Western Bank has the best ones, that is the lowest ones.
The problem with cash flow is that for banks they tend to be volatile and often negative. Also note that I got the CFPS for CWB and CM from a site. I do not know if the site calculates CFPS like I do. Why I caution is because different sites give different values for CFPS.
| Bank | Symbol | DPR for EPS | DPR for CFPS |
|---|---|---|---|
| Canadian Western Bank | CWB | 36% | 32% |
| CIBC | CM | 52% | 46% |
| Bank of Montreal | BMO | 49% | 89% |
| Bank of Nova Scotia | BNS | 48% | 24% |
| Royal Bank | RY | 45% | 18% |
| National Bank | NA | 44% | 11% |
| TD Bank | TD | 48% | 11% |
When Shares are issued for Stock Options, you want a company that issues around the same relative number of shares for its industry. Of course, the lower the number of shares issued for stock options, the less money comes out of the earnings for shareholders. In the value column, I am putting in the value of the stock options at the end of the calendar year rather than the book value of these shares.
In 2015 Royal Bank has one of the lowest percentages of their shares issued for stock options purposes. However, it was only the third lowest when it came to the cost of these stock options. It has the same position as last year. Also for 2015 National Bank has the highest percentage of their shares issued for stock purposes. This was the same as for 2014. All the banks issues less shares and a lower percentage of their shares in 2015 compared to 2014.
| Bank | Symbol | Shares | % of o/s Shares | Value 2014 |
|---|---|---|---|---|
| Bank of Montreal | BMO | 0.843 | 0.13% | $ 68M |
| Bank of Nova Scotia | BNS | 1.828 | 0.15% | $112M |
| Royal Bank | RY | 1.190 | 0.08% | $ 89M |
| National Bank | NA | 1.060 | 0.31% | $ 46M |
| TD Bank | TD | 3.300 | 0.18% | $163M |
For the 10 year Price/Graham Price Ratios, the lower the ratio the lower the relative price of the underlying shares. Here again, this chart shows that investors are willing to pay a relatively higher price for Royal Bank stock than for other bank stocks. It also shows that generally the National Bank has a relatively lower stock price.
| Bank | Symbol | Low | Median | High |
|---|---|---|---|---|
| Bank of Montreal | BMO | 0.77 | 0.90 | 1.05 |
| Bank of Nova Scotia | BNS | 0.91 | 1.02 | 1.21 |
| Royal Bank | RY | 0.99 | 1.17 | 1.40 |
| National Bank | NA | 0.80 | 0.89 | 1.05 |
| TD Bank | TD | 0.87 | 0.99 | 1.08 |
So on a relative basis what stock is cheaper? BMO has the lowest P/GP Ratio for the stocks that I follow. The Royal Bank has relatively the lowest P/GP Ratio compared to the 10 year median value being some 23% lower. CWB has the absolute lowest P/GP Ratio.
| Bank | Symbol | Price | Graham Price | P/GP Ratio | M/C |
|---|---|---|---|---|---|
| Canadian Western Bank | CWB | $22.45 | $37.19 | 0.60 | |
| CIBC | CM | $90.27 | $103.64 | 0.87 | |
| Bank of Montreal | BMO | $74.41 | $94.10 | 0.79 | -12.14% |
| Bank of Nova Scotia | BNS | $56.33 | $62.42 | 0.90 | -11.53% |
| Royal Bank | RY | $70.74 | $77.99 | 0.91 | -22.48% |
| National Bank | NA | $38.70 | $51.36 | 0.75 | -15.34% |
| TD Bank | TD | $52.43 | $60.09 | 0.87 | -11.87% |
For dividend yields, the higher the dividend yields the better the relative price of a stock is. Here is the 5 year median and historical average and historical median dividend yields based on my spreadsheets for our banks. The BMO seems to be giving the best dividend yields.
| Bank | Symbol | 5 Year | Hist. Ave | Hist. Med |
|---|---|---|---|---|
| Bank of Montreal | BMO | 4.46% | 5.60% | 4.56% |
| Bank of Nova Scotia | BNS | 4.10% | 5.20% | 3.86% |
| Royal Bank | RY | 3.92% | 4.97% | 3.92% |
| National Bank | NA | 4.08% | 6.12% | 3.89% |
| TD Bank | TD | 3.71% | 3.52% | 3.47% |
The best test of whether or not a stock is cheap or expensive is to compare the current dividend yield to the Historical Median Dividend yield. Except for BMO, all the banks I follow have higher dividend yields than the historical median.
The higher the dividends yield the better and in this category, the winner is the National Bank at 5.58%. National Bank is also the one which is the highest compared to the historical median. It is some 43% higher than the historical median dividend yield. Of the big 5 banks, Bank of Nova Scotia is a high yield and is some 29% above its median.
| Bank | Symbol | Price | Dividend | Yield | M/C |
|---|---|---|---|---|---|
| Canadian Western Bank | CWB | $22.45 | $0.92 | 4.10% | |
| CIBC | CM | $90.27 | $4.60 | 5.10% | |
| Bank of Montreal | BMO | $74.41 | $3.36 | 4.52% | -0.98% |
| Bank of Nova Scotia | BNS | $56.33 | $2.80 | 4.97% | 28.77% |
| Royal Bank | RY | $70.74 | $3.16 | 4.47% | 13.96% |
| National Bank | NA | $38.70 | $2.16 | 5.58% | 43.48% |
| TD Bank | TD | $52.43 | $2.04 | 3.89% | 12.13% |
The problem with the above chart is that I have different years of data for different banks. Here is the 5 year median, historical average and historical median dividend yields going back to 1988 for all banks. From this chart you can see that the TD Bank pays out relatively a lower dividend yield that the other banks. The historical median dividend yield is probably the best measure, and it is clear that the Bank of Montreal pays out the best yield.
| Bank | Symbol | 5 Year | Hist. Ave | Hist. Med |
|---|---|---|---|---|
| Bank of Montreal | BMO | 4.46% | 5.33% | 4.38% |
| Bank of Nova Scotia | BNS | 4.1% | 5.20% | 3.86% |
| Royal Bank | RY | 3.92% | 4.43% | 3.78% |
| National Bank | NA | 4.08% | 6.12% | 3.89% |
| TD Bank | TD | 3.71% | 3.27% | 3.33% |
What bank is now giving the best yield? National Bank still has the highest yield and the highest difference from its median. The BNS also is still showing a high yield compared to its median.
| Bank | Symbol | Price | Dividend | Yield | M/C |
|---|---|---|---|---|---|
| Canadian Western Bank | CWB | $22.45 | $0.92 | 4.10% | |
| CIBC | CM | $90.27 | $4.60 | 5.10% | |
| Bank of Montreal | BMO | $74.41 | $3.36 | 4.52% | 3.09% |
| Bank of Nova Scotia | BNS | $56.33 | $2.80 | 4.97% | 28.77% |
| Royal Bank | RY | $70.74 | $3.16 | 4.47% | 18.18% |
| National Bank | NA | $38.70 | $2.16 | 5.58% | 43.48% |
| TD Bank | TD | $52.43 | $2.04 | 3.89% | 16.84% |
On my other blog I wrote yesterday about Enghouse Systems Ltd. (TSX-ESL, OTC-EGHSF)... learn more. Tomorrow, I will write about Rogers Sugar Inc. (TSX-RSI, OTC- RSGUF)... learn more.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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