uploads///PBV Banks

Does Citigroup Look Attractive at Its Current Valuations?

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Dec. 4 2020, Updated 10:52 a.m. ET

PBV ratios

Generally, banking stocks (XLF) trade between 1x and 2x their book values. Stocks trading lower than their book value attract investors’ attention because they’re considered to be generating extremely poor returns. The PBV (price-to-book value) compares a company’s current market price to its book value. These ratios are commonly used to compare financial services firms because most banks’ assets and liabilities are constantly valued at market values. If a company trades lower than its book value, it means that either the asset value is overstated or the company is generating a poor return on its assets.

Currently, Citigroup trades at a discount of 40% to its book value. It trades cheaper than peers such as JPMorgan Chase (JPM), Wells Fargo (WFC), and Goldman Sachs (GS).

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In the last five years, it traded at an average discount of 30% to its book value. Currently, its valuations are suppressed and analysts consider it an “inexpensive value buy.” Citigroup shares have fallen~15% year-to-date. They have underperformed its banking peers. Its PBV ratio has declined 8% in the past two months. This could provide a good entry point for investors. Valuations in the banking space are beaten down as global volatility led to bloodshed in stock markets. The company offers an attractive combination of cheap valuations, improving profitability, and a large-scale share buyback program.

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