The PBV (price-to-book value) ratio is considered to be the best multiple to value companies in the insurance, finance, and banking space. The companies have significant liquid and tangible assets. A PBV multiple less than 1.0 indicates that the stock is undervalued and considered to be a good “buy.”
However, finding stocks that are trading below their book values in a bullish market scenario can be a challenge. Stocks that are trading below their peers’ multiples and the industry average could be a good option in such a situation.
Currently, JPMorgan Chase (JPM) trades at a PBV multiple of 1.66x—a significant premium to the industry average of ~1.48x. The stock’s valuations are higher than its close peers. Bank of America (BAC), Wells Fargo (WFC), Goldman Sachs (GS), and Citigroup (C) have PBV ratios of 1.28x, 1.53x, 1.18x, and 0.96x, respectively.
Relying entirely on the PBV ratio might not always reflect a company’s performance. Stock prices also reflect the long-term expected earnings growth. A company might have a low PBV ratio for other reasons like weak earnings, a highly leveraged balance sheet, and a highly volatile business.
A company that’s in a mature or declining phase might have a low PBV ratio. So, investors might want to examine other valuation indicators like the PE ratio.
Currently, JPMorgan Chase trades at a trailing 12-month PE ratio of 14.01x, which is lower than the industry average of 15.29x. However, JPMorgan Chase stock trades at a premium compared to its peers. The trailing 12-month PE ratios for Bank of America, Wells Fargo, Goldman Sachs, and Citigroup are 13.71x, 13.29x, 9.66x, and 11.73x, respectively.
Based on Wall Street analysts’ earnings estimates for the next 12 months, JPMorgan Chase, Bank of America, Wells Fargo, Goldman Sachs, and Citigroup have forward PE ratios of 11.56x, 10.82x, 11.25x, 9.04x, and 9.71x, respectively.
The iShares U.S. Financial Services ETF (IYG) holds ~12.2% of its portfolio in JPMorgan Chase stock.