National Australia Bank Ltd. (ASX: NAB) shares are down 35% in 12 months.
For shareholders, it'd be safe to say it's been more than a tumultuous ride since NAB's share price peaked at $39.71 in April last year.
Down…and out?
The reasons behind NAB's recent downtrend are anyone's guess. Indeed, I could speculate that it has something to do with NAB's divestment of Clydesdale Bank PLC (ASX: CYB) earlier this year. Or the downtrend is a result of its recent record-breaking capital raising, the headwinds facing the banking sector or just a realisation that NAB shares were priced to perfection. However, it's more likely a combination of all the above.
When a prominent dividend share falls significantly in value, usually, I'd get excited about the prospect of buying a good cheap investment. But – frankly – I have no way of knowing for sure that what I'm buying is a worthwhile investment.
Of course, all investments in the share market involve an element of uncertainty or 'risk' as your advisor would say.
However, NAB, Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) have so many moving parts and are so complicated that an investment in them seems more an act of faith or hope.
Analysts spend weeks analysing Australia's big banks, but their valuations ultimately come back to simple valuation methodologies like price-earnings ratios, dividend discount models (in which they make forecasts for dividend payments) and price-book ratios – not something I'd stake my life savings on unless they are seriously cheap. Unfortunately, with so many investors following the banks, they'll rarely fall into 'bargain' territory.
For the record, I'm all for an added layer of risk and uncertainty, but more risk equals more reward, right?
Are NAB shares a red hot buy?
NAB shares have a lesser price than they did a year ago — but that doesn't necessarily make them cheaper or more valuable. Making an informed decision on their value is not easy and requires painstaking research and analysis to come even close to valuing them.
Personally, I'm holding off buying NAB shares until the current banking cycle plays out because, right now, I wouldn't call them a 'red hot buy'.
