Citigroup (C) Stock Still Looks Cheap Despite Its 247% Run

Citigroup has delivered a very large 3 year share price gain, which puts a spotlight on whether the business now earns enough on its capital to justify where the stock trades today. With the bank rolling out new payment and digital asset services, the question becomes how efficiently those initiatives can turn invested dollars into lasting shareholder returns.

• Citigroup's share price has risen about 247.2% over the past 3 years, so any view on the stock now hinges on whether those returns line up with the returns it earns on its own capital.
• Citi's push into instant cross border payments and stablecoin settlement can influence expectations for fee income, scalability and the level of capital needed to support that activity over time.
• What if you looked at Citigroup through its earnings instead? See what Citigroup's 13.1x P/E says about the price.

The issue now is whether the returns Citigroup earns on its capital are strong and resilient enough to support today's share price after such a sharp multi year move.

If you want more than one bank to compare Citigroup's recent 3 year surge against, a focused screen of 31 high quality undervalued stocks is a useful next step for deeper research.

Is Citigroup Still Cheap on Excess Returns?

The Excess Returns model estimates what Citigroup creates above its cost of equity as it reinvests shareholder capital over time. It looks at how efficiently each dollar of book value is turned into earnings and whether that spread is worth more than the current $128.50 share price.

Citigroup is modeled with book value of $114.74 per share and a stable book value of $126.28 per share, pointing to a balance sheet that the model expects to keep growing. On those assets, analysts expect stable EPS of $13.20 per share and an average return on equity of 10.45%, versus a cost of equity of $10.09 per share. That gap feeds an excess return of $3.11 per share, which the model treats as value created on top of the required return that shareholders demand.

Because the Excess Returns work is cross checked against a dividend discount view that values the cash payout stream, the model concludes that Citigroup’s estimated intrinsic worth sits substantially above where the stock trades today. Citi’s recent move to launch multi market instant payments on the Swift scheme helps explain why the market gives some credit for growth, yet still leaves a gap to what the Excess Returns suggest. Find out what Citigroup could be worth using our Excess Returns estimate.

The Citigroup Narrative: What Would Justify Today's Price?

Citigroup Narratives pick up where the valuation gap above leaves off by spelling out which combinations of growth, margins and earnings power would need to hold for the stock to be worth materially more or materially less than today’s price. Each one lays out the assumptions that sit behind its fair value so you can compare those expectations with how Citigroup’s actual results develop on Simply Wall St’s Community page.

One of the top community narratives on Citigroup: roughly fairly valued

"The main thing that has to go right is that Citigroup turns its current mix of transaction services growth, wealth and U.S. cards profitability, and declining transformation expenses into sustainably higher ROTCE while managing regulatory and sanctions risk…"

Discover why this Narrative puts Citigroup at roughly fairly valued.

Citigroup’s price is only one piece of the investment decision

Once the numbers are mapped out, attention often shifts to who is steering Citigroup and how their pay packets line up with long term shareholder outcomes. See who runs Citigroup and how they are paid.

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.

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