Stock Valuation: Wells Fargo & Co. (WFC)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price    
Financial Services – Banks – Banks – Global USD54.69    
@ 03 Jun 2018    
COMPANY PROFILE Wells Fargo & Co operates as one of the largest banks in the United States. Its business operations are split into three segments: Community banking; Wholesale banking; and Wealth and Investment Management.

Wells Fargo & Co is one of the four largest banks in the United States, rapidly approaching $2 trillion in balance sheet assets. The company is split into three segments for reporting purposes: Community banking; Wholesale banking; and Wealth and Investment Management. The company is also a major player in the residential real estate market, originating and servicing a sizable share of U.S. mortgages.

Stock Code WFC    
Valuation Analysis Below                  

Wells Fargo & Co. PE Ratio

The Price Earnings (PE) Ratio is the most frequently used valuation indicator for a stock. However, there are times when this ratio cannot be used e.g. when the company reports a loss or profit is so minimal that it results in an abnormally high PE Ratio. We use the PE Band to show whether a stock is overvalued or undevalued based on its historical PE. 
At the price of USD54.69 as at 03 Jun 2018, Wells Fargo & Co is trading at a PE Ratio of 12.9 times last 12 months earnings.  This is a 5.1% discount to its historical average Price to Earnings Ratio of 13.6 times. (Price based on the historical average PE of the company is indicated by the red line.) 
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: Price to Sales chart is 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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