Will NatWest shares beat the FTSE 100 again in 2025? Here’s what the charts say

NatWest shares have left rivals Lloyds and Barclays in the dust in 2024. Stephen Wright looks at whether the stock’s likely to do the same again next year.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

NatWest Group‘s (LSE:NWG) been one of the best-performing FTSE 100 shares of 2024. The big question for investors now is whether or not it can do it again next year. 

Created with Highcharts 11.4.3NatWest Group Plc PriceZoom1M3M6MYTD1Y5Y10YALL23 Dec 201923 Dec 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

Let there be no suspense – I’m doubtful. In general, share prices go up for one of two reasons and I’m not convinced either’s likely to apply to NatWest in 2025. 

Why stocks go up

In general, stocks go up for two reasons. Either the underlying business increases in value or investors put a higher value on the company’s existing assets. NatWest’s shares benefited from both in 2024. The bank’s earnings per share reached some of their highest levels since before the pandemic.

Should you invest £1,000 in Marks and Spencer right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Marks and Spencer made the list?

See the 6 stocks

NatWest Earnings per Share 2019-24


Created at TradingView

On top of this, the price-to-book (P/B) multiple the stock trades at has increased from 0.6 to 1. Together, these two factors have caused the share price to climb 88%. 

My suspicion however, is that this combination of growth and multiple expansion’s unlikely to be repeated in 2025. And that makes it less likely the stock will outperform the FTSE 100 next year.

Growth

A lot of NatWest’s success over the last year has been due to interest rates being unusually high. This has allowed it to achieve unusually good returns on its loans. 

Throughout 2024, the bank’s managed to keep its net interest margin (the difference between the interest it pays and the interest it receives) above 2%. But this will be a challenge in 2025.

The Bank of England has been lowering interest rates, which should cause lending margins to contract. While the effect of this might not be immediate, I expect it to limit potential growth.

I don’t expect rates to come down to where they were in 2021, and I’m not too worried about profits falling. But I also don’t anticipate the same level of growth it achieved this year.

Valuation

The bigger issue, in my view, is valuation – a P/B multiple of 1’s unusually high for NatWest. In fact, the stock hasn’t traded at that level in the last 10 years. 

NatWest P/B ratio 2014-24


Created at TradingView

It’s a fair point that the bank’s probably in a better state than it has been at any point since 2014. For one thing, the UK government’s stake in the business has been reduced significantly.

Nonetheless, I think it’s a big ask for the P/B multiple to expand further in 2025. A similar increase to 2024 would mean the stock traded at 1.66 times book value. The stock already trades at a higher multiple than Barclays (0.5) or Lloyds Banking Group (0.7). And while those banks have challenges of their own, I’m not sure NatWest is that much better. 

2025 outlook

I’m not expecting NatWest to outperform the FTSE 100 next year. The stock’s been boosted by higher interest rates and an expanding valuation, but I think the effects of these have played out.

Of course, investing’s about more than the next 12 months. But with the stock at an unusually high multiple, I think there are better opportunities elsewhere for me while the business catches up.

But this isn’t the only opportunity that’s caught my attention this week. Here are:

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

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 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.

More on Investing Articles

artificial intelligence investing algorithms
Investing Articles

Up 272% in just a year, is Palantir stock just getting started?

This writer recognises that Palantir has grown its business very well -- but does the stock price offer him an…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

Up 50%? The Aston Martin share price forecast is mind-blowing! 

If analysts are right, the Aston Aston Martin share price could absolutely rocket in the year ahead. Harvey Jones says…

Read more »

Investing Articles

As the S&P 500 drops, here are 2 Stocks and Shares ISA holdings I’m watching

Our writer has different views on how President Trump's tariffs might affect these two US holdings in his Stocks and…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

£10,000 invested in Tesla stock at Christmas is now worth…

Tesla stock has been one of best-performing investments of the past decade. But things haven't gone to plan for investors…

Read more »

Investing Articles

Up 279% in 5 years, could Meta stock keep soaring?

Meta stock has more than tripled in five years. This writer sees lots to like about the business but also…

Read more »

Pink 3D image of the numbers '2025' growing in size
Investing Articles

25% total return in a year? Is now the perfect time to buy BP shares?

BP shares are on the front line of today's global economic and political uncertainty but analysts think they can still…

Read more »

Affectionate Asian senior mother and daughter using smartphone together at home, smiling joyfully
Investing Articles

With Cash ISA changes coming, could now be the time to consider buying shares?

Changes to the Cash ISA could lead to greater investment in the stock market. This could be a good thing…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »