Foolish Question: Bendigo and Adelaide Bank

Bendigo & Adelaide Bank shares have fallen back to $7.30. Are they a buy now?

A Motley Fool reader asks…

A few  years ago, a  stock advice site gave a strong recommendation for Bendigo & Adelaide Bank (ASX: BEN).

At that stage the shares were around $11, with the site advising the shares would head towards $18 over the following 6 month period.

Now we know that this did not happen and thankfully I chose to see what would happen and did not buy the shares. However I did look at the stats for Bendigo and did not dislike it. I was also impressed by the dividend yield.

Reason I am asking, now at around $7.30 it is an even better buy that at $11. However if things go more pear shaped in Europe and we get a price of $5.00 would that not be a sensational buy?

Could you run a rule over Bendigo and maybe comment on my thinking? They do a lot for us here in the country. Would you call them a company worth investing in?

The Fool replies…

We weren’t fans of Bendigo at $11, and we’re not necessarily fans at the current price. The growth drivers – house prices, consumer credit and GDP growth – for banks are sluggish at the moment, and there are a lot of unknown debt risks on bank balance sheets.

We’d be interested at a lower price, but not at the moment, and would likely prefer the larger banks, such as ANZ (ASX: ANZ), Commonwealth Bank (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac (ASX: WBC) given the choice.

As to setting a price target for the future, that’s a tough ask. We don’t know what would happen to the quality of Bendigo’s business on the way to $5. If that happened with no additional risk of bad debts, it certainly would be attractive – but it’s hard to imagine one without the other.

We like the way you think, but we’d want to have a fresh look at the quality of the business before committing to buying at some point in the future.

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