MENU

Is Royal Bank Of Scotland Group plc A Super Growth Stock?

Despite being ahead of the FTSE 100 over the last year, RBS (LSE: RBS) (NYSE: RBS.US) has not made a great start to 2014. Indeed, shares are down 9% year-to-date, while the FTSE 100 is currently down less than 3%. Could recent share price weakness mean that RBS is now worth buying at current levels? Moreover, is RBS a super growth stock?

Good Value

Looking at its last five years, it’s clear that it’s been a tough time for RBS. The banking crisis has meant that it has made a loss in each of the last five years, although 2014 is forecast to be the year when it moves from loss to profit. That’s because RBS is expected to deliver earnings per share (EPS) of 23.8p in 2014, which puts shares on a price to earnings (P/E) ratio of 12.9. This compares favourably to the FTSE 100, which currently trades on a P/E of around 13.5 and shows that RBS offers good relative value, which is at least partly because of its share price weakness in recent months.

rbsStrong Growth

In addition to moving from loss to profit in 2014, RBS is also forecast to deliver very strong earnings growth. For instance, in 2015 EPS is set to increase by 11.8%, which is well above the mid-single digits offered by the wider index. When combined with RBS’s P/E ratio of 12.9, a price to earnings growth (PEG) ratio of 1.1 can be generated. This is only slightly above the PEG ‘sweet spot’ of 1.0 and highlights that the impressive growth prospects offered by RBS are available at a price that appears to be very reasonable.

Looking Ahead

Furthermore, RBS also looks set to benefit from the improved macroeconomic outlook for the UK economy. Not only could RBS benefit from increased asset prices, more economic activity could mean increased numbers of mortgages and loans to businesses, too. Taken together, this could mean that RBS’s profitability continues to show upside over the medium to long term, which is clearly great news for shareholders.

As a result of these encouraging prospects regarding the economy, a reasonable price and strong growth that is forecast to be delivered over the next year, RBS looks to be a great growth play. As such, it should be classed as a super growth stock.

Of course, there are other great opportunities in the UK banking sector, but sometimes it's tough to find them. That's why The Motley Fool has written a free and without obligation guide called The Motley Fool's Guide To Banks.

It's jargon-free, to the point and is ideal for investors who want to take advantage of strong potential growth in the UK banking sector but who don't have the time or inclination to spend hours researching it.

The guide could help to boost your portfolio returns and make 2014 an even better year for your investments.

Click here to take a look.

Peter owns shares in RBS.