Is the ANZ share price a buy? Here's my view

Can investors bank on further gains from ANZ?

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The ANZ Group Holdings Ltd (ASX: ANZ) share price has shown solid returns in the past year, rising by 12%. That compares to an increase of 11% for the S&P/ASX 200 Index (ASX: ANZ).

After the ASX bank share delivered such a good return for investors, the question is whether the share price can continue to rise or whether it has gone as far as it can for now.

Of course, first of all, I should say that past performance is not a guarantee of future performance. Just because the price went up doesn't mean it's going to keep rising – it could even drop.

Investors shouldn't focus on the share price's performance but rather on whether the valuation is attractive in the current environment and given the bank's expectations.

Let's look at the valuation with the upcoming financial year in mind.

ANZ share price FY25 valuation

I'm going to refer to UBS's forecast for what the big bank could achieve in the 2025 financial year.

The broker predicts that in FY25, ANZ could generate revenue of $22.5 billion, pre-tax profit of $10.4 billion, statutory net profit after tax (NPAT) of $7.2 billion, and cash earnings of $7.3 billion.

At the current ANZ share price, this projection suggests it is on a forward price/earnings (P/E) ratio of 12.7x.

It certainly is lower priced than its major peers. For example, the Commonwealth Bank of Australia (ASX: CBA) share price is valued at more than 26x FY25's estimated earnings. In other words, CBA is trading on a multiple that's twice that of ANZ.

However, I'd argue that CBA is significantly higher quality than ANZ, so a substantial portion of that value gap may be justified.

Is now a good time to invest in the ASX bank share?

The bank is facing a number of challenges.

For starters, it's still under a cloud from the investigation into the government bond trading scandal. Only time will tell what the ultimate cost of this is, but it's not a good look for the bank.

The ASX bank share is seeing arrears rise amid high interest rates. The bank's Australian home loan arrears that were at least 90 days overdue rose to approximately 0.80% in September 2024, which isn't promising for shorter-term profit generation, cash flow and potential dividends.

Strong competition in the lending sector is a headwind for loan volumes, the loan interest rate it can charge borrowers, and the interest rate it needs to attract and retain savers.

That makes it tricky to maintain the net interest margin (NIM), the measure of profitability for banks and their lending (including funding costs). Mortgage brokers add an additional level of competition because comparing all the loan options for borrowers is easier, and this means price becomes a key factor.

When the ANZ share price was $29.36, the broker said it was trading at 1.2x its (two-year forward) price to book ratio, which was "roughly in line with historical averages."

To invest in a large, relatively slow-moving business like ANZ, I'd want to do so at a very good price. However, I wouldn't describe the current valuation of ANZ shares as appealing, particularly given that ANZ's profit is projected to barely grow over the next couple of years.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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