Is There Still Time To Buy Royal Bank of Scotland Group plc?

Can Royal Bank of Scotland Group plc (LON: RBS) move higher, or are the company’s shares overvalued?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.

Today I’m looking at Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) to ascertain if its share price has the potential to push higher. 

Current market sentiment

The best place to start assessing whether or not RBS’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.

Unfortunately, at present it would appear that the market is disappointed with RBS’s performance as the bank continues to report rising losses and asset sales. Further, it would appear that RBS is still many years away from a full return to health.

Still, there are glimmers of hope for RBS. For example, the bank is set to benefit from the economic recovery here within the UK. Additionally, RBS should benefit from the sale of two business, Citizens Bank in the US and the British retail bank, Williams & Glyn. Both banks should attract respectable prices from prospective buyers. 

Upcoming catalysts

Fortunately for RBS’s investors, they will not have to wait long for a catalyst to drive the bank’s share price higher as RBS’s expected to return to profit during 2014.

Indeed, according to City analysts RBS is expected to report a pre-tax profit of £3.7bn for 2014, equating to earnings per share of 23.6p. What’s more, City estimates currently forecast the bank’s earnings to jump 12%, to 26.4p per share during 2015.

In addition, RBS’s share price should benefit from the resumption of dividend payments to shareholders. Once again, the City believes that RBS will offer a token dividend of 0.4p per share during 2014, rising to 1.5p per share for 2015 — a yield of 0.5%.

Valuation

As RBS reported a loss for 2013, it’s not possible to value the bank on a historic basis. However, it is possible to value RBS’s shares based on the profit estimates above. Specifically, at current levels RBS is trading at a forward P/E of 13.2 for 2014 and a ratio of 11.8 for 2015. Unfortunately, this valuation looks expensive in comparison to RBS’s main UK peer, Lloyds. 

Lloyds is set to report earnings per share of 7.3p for this year, which puts the bank on a forward P/E of 10. Nevertheless, RBS’s peers within the wider banking sector currently trade at an average P/E of 23, making the bank’s shares seem cheap.

Foolish summary

So overall, based on RBS’s low valuation in relation to peers and the bank’s return to profit, I feel that there is still time to buy Royal Bank of Scotland. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert does not own any share mentioned within this article. 

More on Investing Articles

Investing Articles

What kind of return could I expect by investing £100 monthly in a Stocks and Shares ISA?

Using a Stocks and Shares ISA to avoid capital gains tax could grow a £100 monthly investment into a second…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Can strong operational momentum keep the Informa share price rising?

FTSE 100 company Informa has been performing well, but this may be just the beginning of a multi-year trend for…

Read more »

Market Movers

What’s going on with the Britvic share price?

Jon Smith flags up why Britvic's share price is surging on Friday, but believes that the company is in a…

Read more »

Cheerful young businesspeople with laptop working in office
Dividend Shares

2 super-cheap passive income shares I’m eyeing up right now

Jon Smith discusses two of his favourite passive income shares in the banking and property sectors, both featuring yields above…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

Up 37.5% in just 12 months, I think this is one of the FTSE 100’s best investments

Our author says this FTSE 100 company is likely to keep on capitalising on the AI and data boom. But…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

This UK share just spiked 15% on bid news. Can we bag a quick profit?

UK share prices are having a good 2024, so far, and this one's already up 39%. Two takeover bids in…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

I’m ‘blowing a raspberry’ at Raspberry Pi shares. Here’s why

Some early investors have made great profits from Raspberry Pi shares. But our writer's questioning whether the 'easy money' has…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Dividend Shares

Here are brokers’ new price targets for Legal & General and National Grid shares

City analysts are generally very positive on National Grid shares. But they're not quite as bullish on the Legal &…

Read more »