East West Bancorp, Inc. (NASDAQ:EWBC), operating in the financial services industry based in United States, saw a significant share price rise of over 20% in the past couple of months on the NASDAQGS. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine East West Bancorp’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
What is East West Bancorp worth?
According to my relative valuation model, the stock seems to be currently fairly priced. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that East West Bancorp’s ratio of 10.82x is trading slightly below its industry peers’ ratio of 13.06x, which means if you buy East West Bancorp today, you’d be paying a fair price for it. And if you believe that East West Bancorp should be trading at this level in the long run, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that East West Bancorp’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
Can we expect growth from East West Bancorp?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a relatively muted profit growth of 9.0% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for East West Bancorp, at least in the short term.
What this means for you:
Are you a shareholder? EWBC’s future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at EWBC? Will you have enough conviction to buy should the price fluctuate below the true value?
Are you a potential investor? If you’ve been keeping an eye on EWBC, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on East West Bancorp. You can find everything you need to know about East West Bancorp in the latest infographic research report. If you are no longer interested in East West Bancorp, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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