Stock Valuation: Canara Bank Ltd (532483)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
Financial Services – Banks – Banks – Regional – Asia INR233.20
@ 20 Jul 2018
COMPANY PROFILE Canara Bank is a part of the financial services sector in India. Its business involves corporate lending, which is serviced through a network of branches in the country and abroad. Its other services include asset management, factoring and bancassurance.

Canara Bank is an India-based commercial bank. The company’s core businesses consist of the corporate lending business, which conducts a broad range of banking activities serving large and midsize corporations; the priority sector and retail sector lending business, which offers funding services to the priority and retail sectors, such as loans to agriculture, housing, and education institutions; the international banking business, which caters to the financial demands of Indian exporters and importers; and other services, which contains services like asset management, factoring, bancassurance, and others. The company owns a large branch network across India, with several branches in overseas cities such as New York, London, Leicester, Shanghai, Manama, Hong Kong, and Dubai.

Stock Code 532483
Stock Valuation Below

Canara Bank Price to Book

Price to Earnings, Price to Sales and Price to Cash Flow ratios all value a company based on what it is generating (i.e. profits, sales or cash flow). Price to Book ratio is different in that it values a company based on what it owns (i.e. its net assets). This is usually a suitable valuation indicator for a financial institution, which frequently revalues its assets and liabilities, or a company with huge asset base e.g. utilities company.
At the price of INR233.20 as at 20 Jul 2018, Canara Bank is trading at a Price to Book Ratio of 0.4 times current book value.  This is a 29% discount to its historical average Price to Book Ratio of 0.6 times.
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Charts are from ProThinker Stock Report. Company description, historical financial statements data and price data are from Estimates are from gurufocus and/or – Thomson Reuters.
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