- If you are wondering whether Capital One Financial at around US$184 per share still offers value, or if most of the opportunity is already reflected in the price, this article walks you through what the current valuation indicates about the stock.
- The share price has moved 0.7% over the past week, declined 11.4% over the last month and is down 25.5% year to date, while showing a 2.6% return over 1 year and 113.2% over 3 years. The recent pullback therefore sits against a much stronger multiyear picture.
- Recent headlines around Capital One Financial have focused on its position in the broader consumer finance space, as investors reassess how credit quality, consumer spending and funding conditions could affect large lenders. This backdrop helps explain why the stock has seen both periods of enthusiasm and more cautious trading in recent months.
- On Simply Wall St's 6 point valuation framework, Capital One Financial scores 3 out of 6. This suggests parts of the business screen as potentially undervalued while others look closer to fair value. The sections that follow break down the main valuation methods before finishing with a more complete way to think about what the stock might be worth.
Find out why Capital One Financial's 2.6% return over the last year is lagging behind its peers.
Approach 1: Capital One Financial Excess Returns Analysis
The Excess Returns model looks at how much profit a company can earn above the return that shareholders require, and then values those surplus earnings over time. It is less about short term swings and more about what the business can sustainably earn on its equity base.
For Capital One Financial, the model starts with a Book Value of US$173.11 per share and a Stable Book Value estimate of US$190.59 per share, based on weighted future book value estimates from 6 analysts. The Stable EPS is US$22.30 per share, sourced from weighted future return on equity estimates from 7 analysts. These figures imply an Average Return on Equity of 11.70%.
The Cost of Equity is US$16.56 per share, so the Excess Return is US$5.74 per share. In other words, the model assumes Capital One Financial can earn more on its equity than shareholders require, and capitalizes that surplus to arrive at an intrinsic value of about US$299.24 per share.
Against a current share price around US$184, this Excess Returns valuation implies the stock is about 38.3% undervalued.
Result: UNDERVALUED
Our Excess Returns analysis suggests Capital One Financial is undervalued by 38.3%. Track this in your watchlist or portfolio, or discover 58 more high quality undervalued stocks.
Approach 2: Capital One Financial Price vs Earnings
For a profitable lender like Capital One Financial, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of earnings. A higher or lower P/E often reflects what the market expects for future earnings and how much risk it sees in those earnings.
Growth expectations and perceived risk both influence what looks like a “normal” or “fair” P/E. Faster, more predictable earnings growth can support a higher P/E, while more uncertain or volatile earnings usually justify a lower one.
Capital One Financial currently trades on a P/E of 63.23x. This is above the Consumer Finance industry average of 7.99x and the peer group average of 21.71x. Simply Wall St’s Fair Ratio for Capital One Financial is 23.36x, which is a proprietary estimate of an appropriate P/E given factors such as earnings growth, profit margins, industry, market value and company specific risks.
The Fair Ratio can be more informative than a simple comparison with industry or peers, because it adjusts for the company’s own earnings profile and risk mix rather than assuming all lenders deserve the same multiple. Compared with the current P/E of 63.23x, the Fair Ratio of 23.36x points to the shares trading above this fair multiple estimate.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Capital One Financial Narrative
Earlier it was mentioned that there is an even better way to understand valuation, so meet Narratives, a simple way for you to express your view of Capital One Financial as a story that links your assumptions for future revenue, earnings, margins and fair value to the current share price.
A Narrative on Simply Wall St connects three pieces in one place: the business story you believe, the financial forecast that flows from that story, and the fair value that those numbers point to, so you can quickly compare that fair value with the live market price to decide if the current setup looks attractive, stretched or somewhere in between.
These Narratives sit inside the Community page on Simply Wall St, where millions of investors can see different fair values and driver assumptions for the same company. They update automatically when new information such as earnings, news or major corporate actions is fed into the underlying estimates.
For Capital One Financial, one investor might lean toward the more pessimistic view with a fair value around US$160 that assumes revenue of US$44.2b and earnings of US$7.1b by 2028 on an 11.0x P/E. Another might sit closer to the optimistic camp with a fair value around US$261 that assumes revenue of US$58.5b and earnings of US$8.0b on a 16.0x P/E. Your job is to decide which story, if either, lines up with how you see the company.
Do you think there's more to the story for Capital One Financial? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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