The National Australia Bank Ltd (ASX: NAB) share price has remained around 40% higher in the past year, despite the small sell-off after the bank's recent FY24 result.
It's important to remember that an ASX share going up in price doesn't automatically mean the company is expensive. Sometimes, a stock price can lift but appear cheap, or a company's share price can drop and still seem expensive.
So, which one is it with the NAB share price? Do the financial numbers suggest the ASX bank share is too expensive? Let's quickly remind ourselves of what the bank reported.
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Earnings recap
In the 12 months to 30 September 2024, NAB reported that its statutory net profit declined 6.1% to $6.96 billion, and cash earnings dropped 8.1% to $7.1 billion.
Its final dividend was hiked by 1.2% to 85 cents per share, and the full-year dividend per share increased by 1.2% to $1.69 per share.
NAB's revenue decreased 2% because of a lower net interest margin (NIM) and expenses grew by 4.5% because of higher personnel expenses primarily due to salary-related and restructuring-related costs as well as higher technology and compliance investing. The bank blamed a 6 basis point (0.06%) reduction in the NIM on lending competition, higher term deposit costs and deposit mix impacts.
Business and private bank cash earnings were flat at $3.26 billion, but the personal banking segment cash earnings sank almost 20% to $1.17 billion.
It also reported a credit impairment charge of $728 million due to deterioration of asset quality and loan book growth.
Is the NAB share price good value?
Based on the profit NAB generated in FY24, the ASX bank share is valued at more than 16x FY24's earnings.
To me, that seems quite expensive for a bank where profit went backwards.
Forecasts from the broker UBS suggest NAB's profit will be largely flat over the next three years (FY25, FY26 and FY27). If that plays out, I wouldn't say that NAB shares are worth significantly more today than they were at the start of 2024. For me, a flat profit would usually mean a flat share price.
Based on UBS estimates, the NAB share price is currently valued at a forward price-to-book ratio of around 2x. If I were considering one of these major ASX bank shares for my portfolio, I'd want to pay a price-to-book ratio of less than 1.5. That means the NAB share price would need to be approximately 25% lower for me to even consider the company.
There are plenty of ASX stocks out there that offer a better price-to-growth value ratio than a huge bank like NAB, in my opinion.
