The National Australia Bank Ltd (ASX: NAB) share price has performed exceptionally for investors, rising by 26% in 2024 to date. But, the ASX bank share has seen its valuation become increasingly expensive.
When a share price rises faster than the company's earnings, the price-earnings (P/E) ratio increases. The higher the number, the more expensive it appears at face value.
ASX bank shares are not known for rapidly rising profits at the best of times, and NAB's most recent profit update wasn't exciting.
The bank reported cash profit of $1.75 billion for the three months to 30 June 2024, which was 0.2% lower than the quarterly average cash profit of the first half of FY24.
Despite that, there are still some backers of NAB shares.
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Insider buying
According to an announcement on the ASX, independent non-executive director Carolyn Kay invested in NAB shares on 12 September 2024.
There's a belief among investors that there's only one real reason leadership figures buy shares of their business – they think it's good value, taking into account the expected long-term success of the business. Investors are wary when people sell shares.
Kay reportedly bought 2,000 shares for a total cost of $77,463. This suggests the NAB share price she bought at was $38.73. That's roughly where the valuation is today, so current investors may gain confidence knowing that a NAB director decided to buy shares despite the large run-up of the valuation.
Broker upgrade
In addition to director buying, according to reporting by The Australian, the broker Morgan Stanley has upgraded its view on the ASX bank share.
Morgan Stanley's rating on the bank was raised to overweight. In other words, the broker thinks it's a buy.
A price target is where the broker believes the share price will be 12 months from the time of the rating. Morgan Stanley's price target is $38. This does imply a small decline from the current level, but it also suggests NAB can hang onto the gains it has generated in the last several months.
What is the NAB share price now?
The bank's 2024 financial year is coming to a close – it finishes on 30 September 2024.
Based on the estimates from broker UBS, the NAB share price is currently valued at 18x FY24's estimated earnings.
UBS also forecasts that NAB could generate $7.03 billion of net profit after tax (NPAT) in FY25. This puts the current valuation at 17.4x FY25's forecast profit. UBS is less optimistic about the bank, with a sell rating and a price target of just $32 (close to 20% lower than today's level).
