• Wondering if Popular at US$146.82 is still offering value after a strong run, or if most of the opportunity is already priced in.
• The stock has recently posted returns of 7.3% over 7 days, 13.1% over 30 days, 16.6% year to date and 82.8% over 1 year, with a 3 year return of 168.4% and a 5 year return of 134.8%.
• These moves have prompted fresh interest from investors looking to understand what is driving sentiment around the bank. Broader sector attention on banks and their balance sheet strength is also helping frame expectations for how Popular may be priced relative to peers.
• Against that backdrop, Popular currently has a value score of 5/6. This sets up a closer look at traditional valuation tools such as P/E, P/B and DCF, followed by a more holistic way to think about what the market might be pricing in.

Approach 1: Popular Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to generate above the return that investors require for holding its equity. In other words, it weighs Popular’s projected profitability against the cost of funding its equity base and then capitalizes those extra profits into an intrinsic value per share.

For Popular, the model uses a Book Value of US$94.75 per share and a Stable EPS of US$16.21 per share, based on weighted future Return on Equity estimates from 6 analysts. The Average Return on Equity is 13.94%, while the Cost of Equity is US$8.12 per share, which leads to an Excess Return of US$8.09 per share. The analysis also assumes a Stable Book Value of US$116.32 per share, again sourced from analyst book value estimates.

Feeding these inputs into the Excess Returns framework produces an estimated intrinsic value of about US$343.14 per share. Compared with the current share price of US$146.82, this implies the stock is 57.2% undervalued on this model.

Result: UNDERVALUED

Our Excess Returns analysis suggests Popular is undervalued by 57.2%. Track this in your watchlist or portfolio, or discover 62 more high quality undervalued stocks.

Approach 2: Popular Price vs Earnings

For a profitable bank, the P/E ratio is a useful way to see what you are paying for each dollar of earnings. It connects directly to what the business is currently generating in profit, which is often how investors think about what feels reasonable for a steady earnings stream.

What counts as a “normal” or “fair” P/E depends on how the market views a company’s growth prospects and risk. Higher expected growth or lower perceived risk can justify a higher multiple, while slower growth or higher risk usually points to a lower one.

Popular currently trades on a P/E of 11.47x. That is below the peer average of 13.26x and also below the Banks industry average P/E of 11.77x. Simply Wall St’s Fair Ratio for Popular is 13.79x. This Fair Ratio is a proprietary estimate of what P/E might be reasonable based on factors like earnings growth, profit margins, risk profile, size, and the Banks industry, rather than relying only on simple peer or sector comparisons.

Because the Fair Ratio of 13.79x is above the current 11.47x, the P/E framework points to Popular trading at a discount to what these fundamentals might justify.

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. Narratives are worth introducing as a simple way for you to put a story around the numbers by tying your view on Popular’s future revenue, earnings and margins to a financial forecast and then to a fair value estimate that you can compare directly with today’s share price to help decide whether to act. All of this can be done within the Narratives section on Simply Wall St’s Community page, where these views are updated when new news or earnings arrive. One investor might build a more optimistic Popular Narrative closer to the US$180 analyst target, while another might lean toward a cautious view nearer US$141, yet both are using the same framework to connect their story, forecast and fair value in a clear and repeatable way.

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.