NatWest shares are up over 65% and still look cheap as chips!

NatWest shares have been on a tear in recent months but still look like they’ve more to give. At least, that’s what this Fool thinks.

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Image source: NatWest Group plc

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Shares in UK bank NatWest (LSE: NWG) are up 66.9% in the last six months. As I write, they’re within 1% of the five-year high they reached back in January 2023.

But even after their impressive rise, I still reckon the share price has plenty of growing room left. So much so that I’m seriously considering snapping up some shares in May.

Valuation

After the share price has climbed, it may be questioned if the stock has any value left to squeeze out of it. But I reckon it does.

One reason I say this is because its shares are currently trading on just 6.8 times earnings. That looks cheap as chips.

That said, a more common way to value bank shares is by looking at its book value and its price-to-book ratio. But on that basis too, at 0.7, NatWest looks cheap.

Of course, NatWest isn’t alone in this regard. Plenty of UK banks look good value for money at the moment. And there’s a reason for that.

We are likely to endure more volatility in the months to come, especially with banks. NatWest’s Q1 update highlighted a 26% drop in profit compared to last year. Lenders have benefited massively from higher interest rates allowing them to charge customers more to borrow. But with rate cuts looking likely to occur this year, that’ll take the shine off high margins.

As such, I reckon shareholders will experience more ups and downs in 2024. The market will be highly sensitive to news regarding interest rate movements. Any negative news relayed by the Bank of England about pushing back rate cuts could send NatWest shares downwards.

Show me the money

But even so, at their slashed price, I like the look of its shares for the long run. I’m even more tempted when I consider the stock’s 5.6% dividend yield.

£10,000 invested today, assuming I reinvest my dividends, would leave me with £53,446 after 30 years. That’s without considering any potential capital gains as well.

A government sale

Another factor that could make investors hesitant is the impending government sale. After bailing out NatWest (back then it was called Royal Bank of Scotland) during the height of the 2008 Global Financial Crisis, the government still owns roughly 30% of the stock.

Now with plans to start reducing its position this year and to exit its position totally by 2026, it has been touted that the government will offload its shares for a discount price.

It’s doing this in the hope of “promoting retail investing and the UK’s capital markets”. If I were to hold fire, maybe I could snag a cheaper bargain.

I don’t want to miss out

But I’m not one to try and time the market. In my opinion, it doesn’t make sense.

I could hold off from buying NatWest shares until the government potentially sells its stake for a discount. But what if between now and then the stock keeps up its fine form? That’s gains I’ll be missing out on.

Instead, at their attractive valuation, I reckon they could be a smart buy today. I’m bullish on the long-term prospects for banking stocks. NatWest is one I’ll certainly be investigating further in May.

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.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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