Shareholders of Australia's big four banks have had a disappointing start to 2017. So far this year all four have underperformed the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) and its year-to-date decline of around 0.8%.
The worst performer of the group has been Australia and New Zealand Banking Group (ASX: ANZ) with a decline of almost 4%. Does this drop put the banking giant's shares in the buy zone?
Unfortunately I don't think it does. Over the last 12 months I have been bullish on ANZ, but at today's share price I see far more downside risk than upside potential.
At present its shares are changing hands at 15x trailing earnings and 1.5x book value. Whilst this may appear cheap relative to the rest of the market, for the banking sector this is relatively expensive.
Currently the sector average is approximately 14x earnings and 1.3x book value.
Furthermore, in the last 10 years ANZ's shares have traded at an average of 12.5x earnings according to data provided by CommSec. Well below where it trades today.
During the same period Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX: NAB) shares traded at an average of 13x earnings, with Commonwealth Bank of Australia (ASX: CBA) shares commanding an average multiple of 13.5x earnings.
Whilst ANZ's underlying business seems to be performing well and the offloading of non-core assets appears to be an astute move, I couldn't justify an investment today strictly on valuation grounds.
If the share price were to fall to around the $25 to $26 mark, I would snap up its shares in a heartbeat. But until that happens I believe there are far better opportunities out there for investors to take advantage of.
