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This FTSE 100 stock is down 30% in six months. Is it an opportunity that’s too good to miss?

The Standard Chartered (LSE: STAN) share price has declined 30% over the last six months. It seems to have become the forgotten bank of the FTSE 100‘s big five. However, Q3 results today have sent the shares up as much as 6% in early trading. Is this the beginning of a recovery? And an opportunity for investors that’s too good to miss?

Substantial progress

The Asia-focused bank (70% of income) is coming to the end of a three-year transformation plan laid out by new management in 2015. The company has made substantial progress and while this hasn’t been as rapid as some investors were hoping, today’s results showed underlying profit before tax of over $1bn for a second successive quarter. Management was able to boast, “we now make as much profit in a quarter as we did in all of 2016.”

Rising profit has come from top-line growth, ongoing securing of cost efficiencies and falling credit impairments. Management said these impairments are running at a quarter of 2016 levels and demonstrate that the quality of the bank’s balance sheet has substantially improved. At the same time, management said: “We know this franchise is capable of much more.” The company will set out how it intends to further improve financial returns over the next three years when it releases its full-year results in February.

Value credentials

City analysts are expecting Standard Chartered to post earnings per share (EPS) of $0.73 (57.5p at current exchange rates) for 2018 — a 55% increase on last year. At a share price of 555p, the price-to-earnings (P/E) ratio is a cheap 9.7 and the price-to-earnings growth (PEG) ratio is also highly attractive, being 0.2, which is far to the ‘good value’ side of the PEG ‘fair value’ marker of one. Looking ahead to 2019, the valuation continues to appeal. The P/E falls to just 8.4 on forecasts of 15% EPS growth to $0.84 (66.1p), while the PEG remains well in value territory at 0.6.

Investors can also expect to be rewarded with a growing dividend on the back of the strongly rising earnings. An expected payout of $0.21 (15.5p) a share this year, giving a yield of 2.8%, is forecast to increase dramatically to $0.30 (23.6p) next year, for a yield of 4.3%.

Risks

The company said today: “Income growth year-on-year was slightly lower in the third quarter impacted by Africa and the Middle East and we remain alert to broader geopolitical uncertainties that have affected sentiment in some of our markets. But growth fundamentals remain solid across our markets and we are cautiously optimistic on global economic growth.”

In my view, Standard Chartered’s cheap valuation offers investors a margin of safety should economic growth prove to be lower than currently forecast. Furthermore, I believe the long-term story of rising prosperity in the bank’s markets remains intact and should provide a tailwind for growth in the coming decades.

The bank has yet to resolve historical matters with US and UK regulators, relating to violations of sanctions laws in the case of the former and financial crime controls in the case of the latter. However, while the company says these “could have a substantial financial impact,” I reckon the resolution of the uncertainty could be as much a positive as a negative for investor sentiment. As such, I rate the stock a ‘buy’.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Standard Chartered. 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.