Two years ago, the stock market was full of worry. A toxic combination of inflation, aggressive interest rate hikes, geopolitical instability, and recession fears created a challenging environment for many firms, particularly banks. This saw Banco Santander (LSE: BNC) shares languishing 49% lower than five years previously.
Since then though, uncertainty has eased and most bank stocks have bounced back.
So let’s take a look at how much £5,000 worth of Santander shares bought two years ago would be worth now.
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Healthy gains
The short answer is that I’d be quids in.
On 25 November 2022, the Santander share price was 242p. Today, it’s at 366p. That translates into a 51.5% gain, meaning my hypothetical £5,000 investment would now be worth £7,575 on paper.
What’s more, shareholders would have banked some dividends over this time, bringing their total return above £8,000. Nice.
This demonstrates how lucrative it can be to invest in the stock market during periods of uncertainty. As billionaire investor Warren Buffett famously advises: “Be fearful when others are greedy and greedy when others are fearful.”
How’s the bank getting on?
Like most banks, Santander has been benefitting from higher interest rates. Last year, the Spanish bank achieved a record profit of €11.1bn, an 18% increase in constant currency from the previous year.
In the first nine months of 2024, profit rose 14% to €9.3bn, driven by strong revenue growth across its global businesses. Earnings per share (EPS) were up 19% to €0.57, while it added 5m new customers.
Santander’s global reach is something I find attractive. It has firm roots in 10 core markets in Europe, including the UK, of course. But it also continues to expand its presence in Latin America, where it supported 7,850 multinational firms, as of May 2024 (an 11% year-on-year increase).
Naturally, there are risks with the stock. Santander’s UK arm recently set aside £295m to cover possible costs related to the brewing motor finance commissions scandal. The group’s chief financial officer recently said that it’ll cost the bank less than £500m. But it could always end up more, denting profits in the process.
Will I invest in Banco Santander?
The stock is trading on a bargain forward price-to-earnings (P/E) multiple of 5.6. Meanwhile, the price-to-book (P/B) ratio is just 0.7, which indicates that the shares are trading well below the value of the bank’s assets.
However, the forward dividend yield of 5.1% is notably less than HSBC (7.1%) and Lloyds (6.3%).
On balance though, I think the stock offers great value. Santander continues to deliver strong, profitable growth. And while the dividend is never guaranteed, it appears extremely well-covered by forecast earnings.
The only reason I won’t be investing is because I already have plenty of global banking exposure through HSBC shares.
Also, I have a large position in MercadoLibre, known as the Amazon/PayPal of Latin America. And I recently invested in Nu Holdings, which owns the largest digital bank in the region. Together, they give my portfolio a lot of exposure to Latin America’s fast-growing financial sector.
