Is There Still Value In BNP Paribas (ENXTPA:BNP) After Its Strong Five Year Run?

• If you are wondering whether BNP Paribas at around €80.57 is still priced for opportunity or already reflecting the story, you are in the right place.
• The stock has had a mixed run recently, with a 0.7% decline over the last week, a 6.9% gain over the last month, a 1.6% decline year to date, and longer term returns of 46.8% over 1 year, 73.5% over 3 years and 151.4% over 5 years.
• Recent coverage of BNP Paribas has focused on its role as a major European banking group and how broader sector moves have influenced investor sentiment. This backdrop helps explain why the share price has not moved in a straight line even with those longer term returns.
• On our checks, BNP Paribas scores a 4/6 valuation score, which suggests some areas of potential value that we will unpack using different methods. We will also come back to a more complete way of thinking about valuation at the end of the article.

Find out why BNP Paribas's 46.8% return over the last year is lagging behind its peers.

Approach 1: BNP Paribas Excess Returns Analysis

The Excess Returns model looks at how much value a bank can create above the return that equity investors require, based on its profitability and balance sheet strength. It starts from book value and expected earnings, then compares the return on equity to the cost of equity.

For BNP Paribas, the model uses a Book Value of €111.07 per share and a Stable EPS estimate of €12.62 per share, based on weighted future Return on Equity estimates from 14 analysts. The Average Return on Equity used is 10.68%, while the Cost of Equity is €14.54 per share. This leads to an Excess Return of €1.92 per share, and a Stable Book Value of €118.22 per share, based on estimates from 9 analysts.

Using these inputs, the Excess Returns model indicates an intrinsic value of about €99.41 per share. Compared with a current share price around €80.57, this suggests the stock is 18.9% undervalued according to this approach.

Result: UNDERVALUED

Our Excess Returns analysis suggests BNP Paribas is undervalued by 18.9%. Track this in your watchlist or portfolio, or discover 875 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for BNP Paribas.

Approach 2: BNP Paribas Price vs Earnings

For a profitable bank like BNP Paribas, the P/E ratio is a useful way to think about value because it connects what you pay today with the earnings the business is currently generating. In general, higher growth expectations and lower perceived risk can justify a higher P/E, while slower growth and higher risk usually point to a lower “normal” or “fair” P/E.

BNP Paribas trades on a P/E of 8.18x. That sits below the Banks industry average of about 10.99x and also below the peer group average of 11.87x. Simply Wall St’s “Fair Ratio” for BNP Paribas is 9.10x. This is a proprietary estimate of what the P/E might be given factors such as earnings growth, profit margins, risk profile, market cap and the banking industry it operates in.

Because the Fair Ratio adjusts for the company’s own characteristics, it can be a more tailored benchmark than a simple comparison with peers or the broad industry, which may have very different growth and risk profiles. With the current P/E of 8.18x sitting below the Fair Ratio of 9.10x, this approach points to BNP Paribas being undervalued on an earnings multiple basis.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1447 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your BNP Paribas Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. Narratives let you attach a clear story about BNP Paribas to specific numbers like your own fair value, revenue, earnings and margin assumptions. They then automatically connect that story to a Fair Value that you can compare with the current price on Simply Wall St’s Community page, where Narratives are updated as new news or earnings land. Two investors might reasonably disagree. For example, one Narrative could lean closer to the higher €100 analyst price target based on confidence in wealth management, digital platforms and capital efficiency. Another could sit nearer the €77.40 target if the focus is on Eurozone concentration, costs, regulatory pressure and asset management headwinds.

Do you think there's more to the story for BNP Paribas? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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