Recent Performance Snapshot for United Bankshares Stock

United Bankshares (UBSI) stock has attracted fresh attention after recent trading, with the shares last closing at US$45.30. Investors are weighing this level against the bank's recent returns and current valuation metrics.

Over the past week the stock declined 3.5%, while the past month shows a gain of 3.5% and the past 3 months a gain of 1.7%. On a 1 year total return basis, United Bankshares has delivered 23.4%. Reported longer windows such as 3 and 5 years show very large cumulative gains of about 7x and 5.8x respectively.

For United Bankshares, the recent 1 day share price decline and softer 7 day share price return contrast with the stronger year to date share price return and multi year total shareholder returns. This suggests that longer term momentum remains intact even as near term sentiment cools.

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So is United Bankshares' recent pullback a crack in the story of a bank generating US$1,231.748m in revenue and US$503.457m in net income, or just sentiment cooling after strong multi year returns? And what does the current valuation suggest?

Price-to-Earnings of 12.4x: Is it justified?

On simple earnings terms, United Bankshares trades on a P/E of 12.4x at a last close of $45.30, compared with a peer average of 15.7x and the US Banks industry average of 12.2x.

The P/E ratio compares the current share price to earnings per share, so it reflects how much investors are paying for each dollar of current profits. For a bank like United Bankshares, which reported earnings growth of 36.2% over the past year and higher net profit margins of 40.9% versus 35.5% a year ago, this multiple is a simple way to relate the share price to that earnings profile.

Relative to the peer average, the stock screens as good value on P/E. However, when set against an estimated fair P/E of 11.9x it looks a touch expensive on this single metric. That tension suggests the P/E could settle closer to the fair ratio level if expectations around future earnings growth of 1.5% per year and revenue growth of 5.6% per year do not shift meaningfully.

Against the broader US Banks industry, the 12.4x P/E is slightly higher than the 12.2x industry average. This signals investors are currently willing to pay a small premium to the sector for United Bankshares' earnings and margin profile, even though its 1 year total return of 23.4% has been close to both the 23.1% industry return and 20.3% US market return.

Result: Price-to-Earnings of 12.4x (ABOUT RIGHT)

However, United Bankshares' investment story could be tested if revenue growth of 5.6% and net income growth of 1.5% slow, or if broader US banking sentiment weakens.

Another View on United Bankshares' Valuation

While the 12.4x P/E suggests United Bankshares is around fair value versus peers, the SWS DCF model points in a different direction. With the stock at $45.30 and a DCF value of $64.98, the shares screen as materially undervalued. Which signal do you trust more: the market’s earnings multiple comparison or the cash flow based valuation?

For readers who want to see how this cash flow based view is built step by step, Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out United Bankshares for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 44 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this all sounds optimistic for United Bankshares, take a moment to look through the numbers yourself and decide how they stack up for your goals. To see what investors are currently focusing on, start with the 3 key rewards.

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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.