As the NatWest share price closes in on a new 5-year high, will it soon be too late to buy?

The NatWest share price has climbed strongly so far in 2024, as the whole bank sector has been enjoying a boost. Profits are down, though.

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It used to be called Royal Bank of Scotland, and would have gone bust without a government bailout. But all these years on, and after a change of name, it looks like the NatWest Group (LSE: NWG) share price is back.

Back growing, that is. The past 12 months have been erratic. But as I write, NatWest shares are just a shade short of the five-year high they reached in January 2023.

NatWest is now up 18% in the past five years, ahead of the FTSE 100. And surely it can’t be long now before we see a new post-Covid peak?

Valuation

After such a positive start to 2024, how does the valuation look? Well, on fundamental measures, the banks still all look cheap — compared to the FTSE 100 average, at least.

For NatWest, we’re looking at a forecast price-to-earnings (P/E) ratio of under eight. And the 2024 dividend forecasts suggests a yield of 5.5%, growing to more than 6% by 2026.

But then, we do need to balance that with a tough year for banks so far.

NatWest’s Q1 update showed a 26% fall in profit, compared to the same quarter a year ago. And it was 23% down on the final quarter of 2023.

Lloyds Banking Group and Barclays have both posted profit falls in the first quarter, too. So it’s clear the bank sector is still under pressure.

Interest rates

And when the Bank of England finally starts to cut interest rates, it could hurt the banks in the short term before the benefits start to show through. Lower interest rates should mean lower net interest profits.

And then, there’s another thing that could be holding the NatWest share price back. And it must surely have a knock-on effect on the whole sector.

The thing is, after the bailout from the bad old Royal Bank of Scotland days, the government still owns 30% of the bank stock.

And it will sell that, possibly a large chunk of it this year. That will have to be at an attractive price, and it could dampen the stock on the free market.

Timing

I have NatWest on my list of candidates for my next Stocks and Shares ISA buy. And part of me thinks I should wait until after the government stake has been sold off. Or, at least, reduced a lot from today’s level.

But then, I have to remind myself that every time I’ve tried to time the market, I’ve got it wrong. And that’s why I don’t do it any more.

I mean, if the share price should climb in the next few months, then dip a bit on the sale, I could still lose out.

New record

So, whether or not I buy NatWest will depend solely on its value, and on the alternatives. And I’ll keep my eye on the possibility of falls this year.

Will the NatWest share price break through that 2023 peak? It might have already done so by the time you read this.

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.

Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc and 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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