Q: Royal seems to continuously march forward. Does the valuation seem a little stretched at this point? I'm seeing a P/E of 14.55. I think I have read that the banks typically trade at a 8.5 to 12 PE.
If the Canadian consumer is likely to to be challenged over the next 24 months and US banks (like JP Morgan) trade at 12.2 PE there seems to be a disconnect. I'm not sure what their revenue is in Canada Vs US.
Thoughts?
If the Canadian consumer is likely to to be challenged over the next 24 months and US banks (like JP Morgan) trade at 12.2 PE there seems to be a disconnect. I'm not sure what their revenue is in Canada Vs US.
Thoughts?
5i Research Answer:
Last year 24.1% of revenue came from the US. RY typically gets a premium valuation as it is the largest Canadian bank and has less of a tendency to take undue risks and/or otherwise 'screw up' like some of the other banks. In the past decade P/E annual average has ranged from 11.0X to 13.5X. But intra-year it has gone above 15X at times. At 13.6X today, it is on the high end of its range for sure. But, investors are willing to pay for reliability, perhaps even moreso if a recession is on the way. Its 22% gain this year we think is largely because of lower rates. The 'next' move will be determined by earnings and the economy. We agree it is a little stretched, so new buyers might be able to display some patience.