It’s been a positive 2014 for investors in Banco Santander (LSE: BNC) (NYSE: SAN.US). Indeed, the Spanish-based bank has seen its share price increase by 6% during the course of the year, while the FTSE 100 is down 2% over the same time period. However, Banco Santander has the potential to go higher and become a strong long term performer that could help pay off your mortgage. Here’s why.
Growth Potential
Perhaps the most impressive aspect of Banco Santander is its growth potential. Indeed, the bank is forecast to increase its bottom line by 23% in the current year and by 21% next year. Both of these numbers are hugely strong and are well ahead of the FTSE 100’s mid-single digit growth expectations over the same time period.
Valuation
Of course, strong growth prospects must usually be paid for and, in this respect, Banco Santander is no different to any other company. With shares in the bank having posted gains during 2014, they now trade on a price to earnings (P/E) ratio of 14.7, which is significantly higher than the FTSE 100’s P/E of 13.2 and may put a lot of investors off investing in Banco Santander. Indeed, many of its UK-based rivals offer lower P/Es than Santander and could, at first glance, appear to be more attractive.
However, when Banco Santander’s growth prospects are taken into account, it seems to offer much better value for money. For instance, it currently trades on a price to earnings growth (PEG) ratio of just 0.7. This is hugely attractive, being below the key 1.0 level, and shows that shares in Banco Santander could offer growth at a very reasonable price.
Looking Ahead
Clearly, the European and UK banking sectors are not ‘out of the woods’ just yet. Indeed, investors in Banco Santander and its peers should expect further lumps and bumps over the next few years, as the sector continues to recover from the biggest banking crisis in living memory. However, things do seem to be on the up for Santander, with growth potential being vast and shares in the bank offering growth at a reasonable price.
To top it off, shares in Banco Santander currently yield a whopping 7.9% which, when combined with its capital growth potential, means that Banco Santander could make a positive contribution to your mortgage repayments.
