In this entry I am only talking about the big 6 Canadian Banks of Bank of Montreal, Bank of Nova Scotia, CIBC, Royal Bank, National Bank, and TD Bank. I try to get the right information, but I cannot guarantee anything. The results may be different from my recent reports as I have updated the stock price to the most recent ones. Also, all the data used in this entry is going back to 1988. When I talked about the individual stocks, data went back for different time periods for each stock.
The conclusion I come to is that none of the banks are currently cheap. Bank of Nova Scotia maybe reasonable as it passes the Dividend Yield test and P/S Ratio tests. The other bank look to be on the expensive side. It just may not be the right time to buy Canadian Banks.
The method I like best to check for a good stock price is using the current dividend yield and compare this against the historical median dividend yield. What you are looking for is a current dividend yield higher than the historical dividend yield. For dividend yields, the higher the dividend yields the better the relative price of a stock is.
In the first chart is the 10 year median and historical average and historical median dividend yields based on my spreadsheets for our banks. In the second chart is a comparison (M/C field) of current yield and Historical Median Yield. The higher the current yield is compared to the historical one, the better the current price is.
Of the big banks that I follow, the Bank of Nova Scotia comes off relatively better in this test. For Bank of Nova Scotia, the current dividend yield is 4.42% and the historical median one is 4.12% a difference of 7.21%. The TD Bank is a close second with a current yield of 3.54% compared to the historical median one of 3.50%. The current yield is 1.28% above the historical median yield.
|Bank||Symbol||10 Year||Hist. Ave||Hist. Med|
|Bank of Montreal||BMO||4.21%||5.28%||4.21%|
|Bank of Nova Scotia||BNS||4.37%||5.09%||4.12%|
Below you can see that Both BNS and TD Bank are reasonably priced as their current yield is higher than the above the historical median dividend yield. The rest are showing as reasonable but above the median.
|Bank of Montreal||BMO||$145.19||$5.32||3.66%||-12.97%|
|Bank of Nova Scotia||BNS||$90.56||$4.00||4.42%||7.21%|
My next favourite test is the Price/Sales (P/S) Ratio. It sometimes works better than the Dividend Yield test on certain stock, especially old income trust stocks. What you want for a reasonable price is for the current P/S Ratio to be lower than the 10 year median P/S Ratio.
Of the big banks I follow, the Bank of Nova Scotia is relatively lower with the current P/S Ratio some at 10.62% above its 10 year median P/S Ratio. Its price is reasonable, but above the median. All the other banks have a higher P/S Ratio than the 10 year median P/S Ratio.
|Bank of Montreal||BMO||2.50|
|Bank of Nova Scotia||BNS||3.08|
In this chart, BNS is showing the stock price as reasonable and below the median. All the other banks are showing the stock price as reasonable, but above the median. Since their current ratio is more than 10% above the 10 year median, they are relatively expensive.
|Bank||Symbol||Price||Rev /Share||P/S Ratio||M/C|
|Bank of Montreal||BMO||$145.19||$41.38||3.51||40.35%|
|Bank of Nova Scotia||BNS||$90.56||$26.58||3.41||10.62%|
A common ratio is the Price/Book Value per Share Ratio. For P/B 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. What you want to see is a current P/B Ratio below the 10 year median P/B Ratio.
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 in the first table. From this it is obvious that historically, investors were willing to pay a relatively higher price for Royal Bank shares than other shares as it has the highest P/B Ratio. It could also say that the Bank of Montreal offers the best deal when it comes to Book Value per Share as it has the lowest ratio.
Of the banks I follow, BMO has the lowest 10 year median P/B Ratio (chart 1) and the Bank of Nova Scotia is the lowest relative to its 10 year P/B Ratio as its current P/B Ratio is some 6.9% higher than the 10 year P/B Ratio (chart 2).
|Bank of Montreal||BMO||1.38|
|Bank of Nova Scotia||BNS||1.59|
The next chart shows that BNS, and CIBC, are relatively cheap as the current P/B Ratios are less than 10% above the 10 year median ratios. The Royal Bank are showing as reasonable but above the median. The rest are showing that they are relatively expensive as they are more than 20% above the 10 year median ratio
|Bank of Montreal||BMO||$145.19||$80.18||1.81||31.22%|
|Bank of Nova Scotia||BNS||$90.56||$53.28||1.70||6.90%|
My next favourite test to check reasonableness of the stock price is using the Graham Price. For the 10 year Price/Graham Price Ratios, the lower the ratio the lower the relative price of the underlying shares. This chart shows that investors are willing to pay a relatively higher price for Royal Bank stock than for other bank stocks as the GP Ratio is the highest ones. It also shows that generally BMO and CIBC have a relatively lower stock price as their median P/GP is the lowest of all the banks at 0.92 and 0.93 respectively.
Of the big banks I follow, the CIBC is relatively lower with the current Price/Graham Price Ratio some 7.00% above its historical median P/GP Ratio (see second chart). All the banks have a higher a Graham Price Ratio than the median Graham Price Ratio
|Bank of Montreal||BMO||0.73||0.82||0.92|
|Bank of Nova Scotia||BNS||0.76||0.85||0.97|
The following chart shows that BNS has the relatively lowest price. All the banks have current ratios above the 10 year median ratios. Their ratios are less than 10% higher than the 10 year median ratios. Therefore, this chart shows that the stock prices are reasonable, but above the median.
|Bank||Symbol||Price||Graham PR.||P/GP Ratio||M/C|
|Bank of Montreal||BMO||$145.19||$150.76||0.96||17.45%|
|Bank of Nova Scotia||BNS||$90.56||$99.57||0.91||7.00%|
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. What this chart also tells you is that investors are willing to pay relatively more money for TD Bank shares per dollar of earnings than for other banks as its P/E Ratios are the highest ones at 10.50, 11.47 and 12.44 for Low, Median and High P/E Ratios.
|Bank||Symbol||Low P/E||Median P/E||High P/E|
|Bank of Montreal||BMO||9.97||11.11||12.28|
|Bank of Nova Scotia||BNS||9.59||11.03||12.47|
So, what is the relatively cheapest bank today? Currently BNS has the lower P/E Ratio at 10.95 (see chart below). In the chart below, in the last column I am comparing the 10 year Median P/E with the Current P/E. BNS has the lowest relative P/E Ratio (at 0.72% below the 10 year Median P/E Ratio). All the rest have a higher current P/E Ratio than the 10 year median ratio. All the banks but CIBC has a current ratio less than 20% above the 10 year median ratio and therefore have a stock price that is reasonable, but above the median. The CIBC bank is showing a stock price as relatively expensive.
|Bank||Symbol||Price||2022 EPS Est.||Curr P/E||M/C|
|Bank of Montreal||BMO||$145.19||$12.60||11.52||3.72%|
|Bank of Nova Scotia||BNS||$90.56||$8.27||10.95||-0.72%|
On my other blog I wrote yesterday about Sylogist Ltd (TSX-SYZ, OTC-SYZLF) ... learn more. Next, I will write about Enghouse Systems Ltd (TSX-ENGH, OTC-EGHSF) ... learn more on Wednesday, January 27, 2021 around 5 pm.
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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