Should I buy NatWest shares today or wait for a government sale?

NatWest shares are up 22% since the start of the year. But with a sale by the government on the way, is now a good time to consider buying?

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Image source: NatWest Group plc

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Earlier this year, the UK government announced plans to sell its NatWest (LSE:NWG) shares. When that happens, I expect the stock to drop. 

Since the start of the year though, the NatWest share price has increased by 22% and isn’t showing any obvious signs of stopping. That means waiting for a better price is a risky business.

The big sale

At the spring budget, Jeremy Hunt announced the government’s intention to sell its stake in NatWest. The plan is to do this via a retail sale direct to individuals, rather than through the stock market.

The government naturally doesn’t want to sell the shares for less than they’re worth. But equally, unless they’re offered at a discount, investors might as well buy the shares on the open market.

That means the sale’s likely to be offered below the price the shares trade at on the stock market. And if that happens, I’d expect the NatWest share price to fall to close the gap. 

On the face of it, this is a strong reason not to buy the stock at the moment. If there’s a discounted sale coming that’s likely to pull the price lower, waiting for that would seem like a good idea.

A rising stock

NatWest shares have some momentum. So even if the government sells the stock at a discount to its market value later in the year, there’s no guarantee this will be below its current price.

This makes waiting a risky strategy. If the shares goes up another 20% from here and then sells at a 15% discount, it’s still going to be more expensive than buying today.

Working out when the best time to buy will be is complicated and involves a lot of uncertainty. I therefore wouldn’t look to use the prospect of a government retail sale as an investment opportunity.

If I were looking to buy NatWest shares, I’d consider the stock at today’s prices and see if it looks good value. And I’d certainly keep an open mind about considering it again later this year. 

Trading at a discount

Even after its recent rally, NatWest shares still trade at a discount to its peers. A price-to-book (P/B) ratio of 0.62 compares favourably with the 0.7 multiple shares in Lloyds Banking Group trade at.

To some extent, I think the discount’s justified. I’m concerned NatWest has underperformed both Lloyds and Barclays over the last year in terms of lending margins and returns on equity.

Banking is a cyclical industry and high interest rates have boosted earnings across the sector over the last year. My worry is that NatWest has missed an opportunity with below-average results.

I wouldn’t rule out buying the stock in future – especially if the company can hit the 12% returns management outlined at the last update. But at today’s prices, I’d prefer Lloyds.

Time to buy?

Investors looking at NatWest shares have a choice about whether to buy today or wait for a better opportunity. But I wouldn’t spend time worrying about what the share price might do this year.

The key to investing is to avoid overpaying. And that involves buying the stock when it’s trading for less than it’s worth – regardless of what happens in the future.

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.

Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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