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If you’re wondering whether Pinnacle Financial Partners’ current share price is really in line with its underlying value, you’re not alone.
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The stock last closed at $95.09, down 2% over the past week, with returns over the past month and year flat, while 3-year and 5-year returns of 19.7% and 36.6%, respectively, hinting at a mixed ride for long-term holders.
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Recent news coverage of Pinnacle Financial Partners has focused on its positioning in the U.S. banking industry and investor sentiment toward bank stocks in general. These headlines help explain why the sentiment surrounding the share price has changed at different points in time over the past few years.
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Pinnacle Financial Partners is currently recording a Valuation Score of 4/6, which means it screens as undervalued across most checks we use. Next, we’ll compare a few common valuation methods and end with a valuation method that can give you a deeper understanding of whether the stock is truly a good fit for your portfolio.
Learn why Pinnacle Financial Partners returned -23.0% last year, lagging its peers.
The excess return model looks at how much profit a company can earn above the return required by shareholders, and then capitalizes these “excess” profits into intrinsic value per share.
For Pinnacle Financial Partners, the starting point is a book value of $88.65 per share and solid earnings per share of $11.59 per share (based on 10 analysts’ weighted estimates of future return on equity). The model uses a cost of equity of $7.32 per share, which implies an excess return of $4.27 per share. In other words, the return attributable to shareholders is greater than the return required to compensate them for the risk.
According to 13 analysts’ forecasts, the average return on equity is 11.02%, and the stable book value is expected to be $105.24 per share. Combining these inputs, the excess return model yields an estimated intrinsic value of approximately $220.83 per share.
Compared to the recent share price of $95.09, this suggests the stock is significantly undervalued, with an intrinsic discount of approximately 56.9%.
Result: Undervalued
Our excess return analysis shows that Pinnacle Financial Partners is 56.9% undervalued. Track this stock in your watch list or portfolio, or discover 874 undervalued stocks based on cash flow.
Please see the Valuation section of our corporate report for more details on how we arrived at this fair value for Pinnacle Financial Partners.
The P/E ratio is a common way to measure a profitable company because it directly ties what you pay to the business’s current earnings. It allows you to compare how the market prices each dollar of earnings across different banks and other industries.
What counts as a “normal” or “fair” P/E ratio depends on how quickly earnings are expected to grow and how risky those earnings are. Higher expected growth or perceived resilience can support a higher P/E ratio, while more uncertainty or weaker profitability tends to drive P/E ratios lower.
Pinnacle Financial Partners currently trades at a price-to-earnings ratio of 22.84 times. This is higher than the banking industry average of 11.84 times and higher than the peer average of 11.99 times. Simply Wall St’s fair ratio for the stock is 24.02x. The fair ratio is a proprietary estimate of what the P/E ratio “should” be after taking into account factors such as earnings growth, risk profile, margins, industry and market capitalization, so it’s more targeted than a simple comparison to peers or broad industry averages.
The current P/E ratio of 22.84x is below the fair ratio of 24.02x, and the stock is described as slightly undervalued based on this metric.
Result: Undervalued
P/E ratios tell a story, but what if the real opportunity lies elsewhere? Explore 1,422 companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is a better way to understand valuation, so let us introduce you to narrative, which is simply your own story about a company that is directly tied to your assumptions about its future revenue, earnings, margins, and fair value.
On Simply Wall St, the narrative connects three parts: what you think is happening in the business, your projections of future performance, and the fair value derived from those numbers so you can compare it to the current stock price and decide whether the stock is attractive to you.
These narratives are housed on Simply Wall St’s community page, where millions of investors share their views. They update automatically when new information, such as news or earnings, is added, so your view of Pinnacle Financial Partners’ fair value is never frozen in time.
For example, the Pinnacle Financial Partners narrative on the community page might assume a relatively optimistic fair value and stronger future profitability. Another might take a more cautious view, with a lower fair value and more conservative estimates. This shows how different investors look at the same numbers and come to different conclusions about when price and value align with their decisions.
Do you think there’s more to the Pinnacle Financial Partners story? Head over to our community to see what others are saying!
This article from Simply Wall St is general in nature. We only use unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended to provide financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or your financial situation. Our goal is to provide you with long-term focused analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
The companies discussed in this article include PNFP.
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