• If you are wondering whether Bank of America stock is offering fair value or a potential mispricing right now, it helps to step back and look at the full picture rather than just the share price on your screen.
• The stock last closed at US$52.48, with returns of 0.5% over the past week, a decline of 1.4% over the past month, a decline of 6.2% year to date, and returns of 20.2% over 1 year, 92.5% over 3 years and 37.6% over 5 years.
• Recent coverage has focused on how large U.S. banks like Bank of America are responding to interest rate expectations, regulatory scrutiny and capital requirements, which all feed into how investors think about risk and profitability. There has also been attention on the broader U.S. banking sector's role in credit availability and consumer lending, helping to frame sentiment around the stock.
• On Simply Wall St's valuation checks, Bank of America records a value score of 5/6, reflecting that it screens as undervalued on most of the six tests. The next sections will unpack what different valuation methods say about that number, before looking at an even more holistic way to think about valuation at the end of the article.

Approach 1: Bank of America Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to generate above the return required by shareholders, then capitalizes those surplus returns into an intrinsic value per share.

For Bank of America, the model starts with a Book Value of US$38.66 per share and a Stable EPS of US$5.27 per share, based on weighted future Return on Equity estimates from 14 analysts. The Average Return on Equity is 12.17%, and the Cost of Equity is US$3.91 per share, which implies an Excess Return of US$1.36 per share. The Stable Book Value used in the model is US$43.26 per share, sourced from weighted future Book Value estimates from 13 analysts.

These inputs are used to estimate an intrinsic value of US$67.95 per share under the Excess Returns framework. Compared with the recent share price of US$52.48, this implies the stock is 22.8% undervalued on this model.

Result: UNDERVALUED

Our Excess Returns analysis suggests Bank of America is undervalued by 22.8%. Track this in your watchlist or portfolio, or discover 47 more high quality undervalued stocks.

Approach 2: Bank of America Price vs Earnings

For a profitable company like Bank of America, the P/E ratio is a useful shorthand for how much investors are paying for each dollar of current earnings. It connects directly to what you see on your brokerage screen, because it is built from the share price and actual reported earnings per share.

What counts as a “normal” or “fair” P/E depends on what investors expect from future earnings and how risky they think those earnings are. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually goes with a lower P/E.

Bank of America currently trades on a P/E of 12.31x. This sits above the Banks industry average of 11.50x, but below the peer group average of 13.49x. Simply Wall St’s Fair Ratio for Bank of America is 14.60x. This Fair Ratio is a proprietary estimate of the P/E that might be appropriate given the company’s earnings growth profile, profit margins, risk, market cap and industry, which makes it more tailored than a simple comparison with peers or the sector.

On this basis, Bank of America’s current P/E of 12.31x is below the Fair Ratio of 14.60x.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Bank of America Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so meet Narratives, a simple way for you to connect your view of Bank of America’s story with your own revenue, earnings and margin assumptions, turn that into a forecast, and then into a fair value that you can compare with the current share price to decide whether the gap between price and value is attractive, all within Simply Wall St’s Community page where Narratives are updated as new earnings or news arrive and where, for example, one investor might build a more optimistic Bank of America Narrative closer to US$71.0 while another takes a more cautious view around US$57.5, giving you a clear sense of how different perspectives translate into different fair values.

Do you think there's more to the story for Bank of America? 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.