• Some investors may be wondering whether Credicorp's current share price still offers value after a strong run, or whether most of the upside has already been captured.
• The stock closed at US$323.65, with a 2.5% decline over the last 7 days and a 4.5% decline over the last 30 days, set against a 13.0% year-to-date return and a 72.8% return over the last year.
• Recent coverage has focused on Credicorp's share price performance and how investors are reassessing risk and potential reward in light of its longer-term return profile. This context helps explain why the stock can see short-term pullbacks even when its multi-year returns, such as the 185.3% 3-year and 237.6% 5-year figures, are very large.
• Simply Wall St's valuation model gives Credicorp a value score of 4 out of 6. This raises the question of how different methods like DCF, multiples, and growth expectations line up, and whether there is an even more useful way to think about valuation, which will be covered at the end of this article.

Approach 1: Credicorp Excess Returns Analysis

The Excess Returns model looks at how much value Credicorp creates above the required return that equity investors expect. Instead of focusing on cash flows, it compares the return on equity to the cost of equity and capitalizes that gap.

For Credicorp, the model uses a Book Value of $483.41 per share and a Stable EPS of $115.97 per share, based on weighted future Return on Equity estimates from 9 analysts. The Average Return on Equity is 19.93%, while the Cost of Equity is $57.16 per share, which leads to an Excess Return of $58.81 per share. The Stable Book Value is $581.79 per share, based on estimates from 8 analysts.

When those excess returns are projected and discounted, the model arrives at an intrinsic value of $429.80 per share. Compared with the recent share price of $323.65, this Excess Returns valuation implies a 24.7% discount, which indicates that the stock is trading below that estimate of fair value.

Result: UNDERVALUED

Our Excess Returns analysis suggests Credicorp is undervalued by 24.7%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.

Approach 2: Credicorp Price vs Earnings

For profitable companies, the P/E ratio is a useful way to link what you pay for a share to the earnings that each share generates. It gives you a quick sense of how many years of current earnings the market is pricing in.

In general, higher expected earnings growth and lower perceived risk tend to support a higher, or "normal", P/E ratio, while slower growth or higher risk usually justify a lower P/E. Credicorp currently trades on a P/E of 12.93x, compared with the Banks industry average of 11.51x and a peer group average of 15.42x.

Simply Wall St's Fair Ratio for Credicorp is 17.20x. This Fair Ratio is a proprietary estimate of what P/E might be reasonable given the company’s earnings growth profile, profit margins, industry, market cap and risk characteristics. Because it brings these factors together, it can be more informative than a simple comparison with peers or the broad industry, which may not share the same growth, quality or risk profile.

Set against the Fair Ratio of 17.20x, Credicorp's current P/E of 12.93x suggests the shares are trading below that framework of fair value.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Credicorp Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives are introduced here as simple storylines you create around Credicorp that link your view of its future revenue, earnings and margins to a financial forecast and a fair value. You can build these using an easy tool on Simply Wall St's Community page that updates as new news or earnings arrive and helps you compare that fair value with the current price to decide if Credicorp looks attractive or stretched. For example, one investor might lean toward the higher US$412 fair value implied by the most optimistic analyst assumptions, while another might anchor closer to the lower US$290 figure. Each of those perspectives becomes a different Credicorp Narrative that is visible to other investors on the platform.

Do you think there's more to the story for Credicorp? 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.