• Investors may be wondering if Popular at around US$150.62 is still offering value after a strong run, or if most of the easy gains are already on the table.
• The stock has returned 1.4% over the last 7 days, 15.8% over the past month, 19.6% year to date, 59.5% over 1 year, 188.1% over 3 years and 128.7% over 5 years, which can change how the market views both its potential and its risks.
• Recent coverage has focused on Popular's position within the US banking sector and how investors are assessing its balance sheet strength and capital return profile. This context helps explain why the share price and sentiment have been closely watched over the past few years.
• Popular currently scores 5 out of 6 on a valuation checklist that tests whether it looks undervalued. This sets up a closer look at standard approaches like P/E and discounted cash flow, with an even more useful way to think about valuation coming at the end of this article.

Approach 1: Popular Excess Returns Analysis

The Excess Returns model looks at how efficiently a bank turns its equity base into profits above the return that shareholders are estimated to require. Instead of focusing on cash flows, it weighs the relationship between book value, earnings power and the cost of equity.

For Popular, the model uses a Book Value of US$97.27 per share and a Stable EPS of US$17.16 per share, based on weighted future Return on Equity estimates from 5 analysts. The estimated Cost of Equity is US$8.06 per share, which implies an Excess Return of US$9.11 per share. That excess is supported by an Average Return on Equity of 14.87% and a Stable Book Value of US$115.45 per share, again using weighted future Book Value estimates from 5 analysts.

Feeding these inputs into the Excess Returns framework gives an estimated intrinsic value of about US$370.73 per share for Popular, compared with the current share price of around US$150.62. According to this measure, the stock appears to be 59.4% undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests Popular is undervalued by 59.4%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

Approach 2: Popular Price vs Earnings

For a profitable bank like Popular, the P/E ratio is a useful way to think about value because it links what you are paying today to the company’s current earnings. Investors generally accept that higher growth expectations and lower perceived risk can support a higher P/E, while slower growth or higher risk usually call for a lower, more cautious multiple.

Popular currently trades on a P/E of 10.82x. That sits below both the Banks industry average of 11.51x and the peer average of 12.27x, which might suggest a discount when you look only at those simple benchmarks. However, these basic comparisons do not adjust for differences in factors like earnings growth, profitability, size or risk across the group.

Simply Wall St’s Fair Ratio for Popular is 13.69x. This is a proprietary estimate of what the P/E could be, given inputs such as the company’s earnings profile, industry, profit margins, market cap and risk characteristics. Because it adjusts for these company specific features, the Fair Ratio can often be more informative than a plain industry or peer average. With Popular’s current P/E of 10.82x sitting below the Fair Ratio of 13.69x, the shares are described as undervalued on this measure.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Popular Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are worth introducing as a simple way for you to attach a clear story about Popular to the numbers you see. This links your view of its future revenue, earnings and margins to a fair value estimate. You can then compare that fair value with the current share price to help frame buy or sell decisions, and do it all within the Narratives section on Simply Wall St’s Community page. Views are refreshed as new news or earnings arrive. For example, one investor might build a more optimistic Popular Narrative around a US$180 fair value based on confidence in digital investment, regional strength and long term earnings, while another uses the same information to support a more cautious US$141 view that focuses on Puerto Rico concentration, competition for deposits and regulatory costs.

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