The National Australia Bank Ltd. (ASX: NAB) share price has fallen 1% today and is down 3.3% for the week.
The volatility comes a day after NAB reaffirmed its intention to proceed with the proposed demerger of its Clydesdale Banking Group. You can read more about the demerger here.
In the wake of yesterday's announcement, however, one prominent investment bank has cut its price target on shares of Australia's biggest business bank. Indeed, analysts at Bell Potter have cut their NAB share price target 5.6%, to $33.50, according to Dow Jones Newswires.
Bell Potter's price target is consistent with that of other analysts. According to the 15 analysts surveyed by The Wall Street Journal, six have a buy rating on NAB shares, with the average price target being $33.35. Currently, the NAB share price is $29.03 – implying investors could be buying with a margin of safety of 15%.
However, relying on analyst price targets is a strategy fraught with risk, in my opinion.
Indeed, if successful investing were that easy, I'd be out of a job. Fortunately, there's no substitute for thorough qualitative research.
In my opinion, anyone who's applied a reasonable qualitative overlay on their quantitative research would know now is more-than-likely not the best time to buy NAB shares.
The economy is slowing, competition and regulation are heating up, shares aren't that cheap and a longer-term threat of technological disruption will move into the limelight before we know it.
Bank statements are also convoluted and require analysts to have a firm grasp of many traditional and non-traditional bank functions, as well as a firm insight into the macroeconomic environment. Therefore, I'd consider the qualitative research component to be both easier and a far more important contributor to an investment thesis in NAB shares.
Buy, Hold or Sell?
With the float of Clydesdale proposed to take place in early 2016, NAB has a couple of busy months ahead of it. Therefore, I expect the share price volatility to continue for the foreseeable future. In the meantime, I think NAB is a hold – at best.
