Shares in Bank of Queensland Limited (ASX: BOQ) are inching higher on Thursday and currently trade 1% in the green at $8.36.
Whilst there’s been nothing remarkable out of the banks’ corner today, its share price has spiked hard in the past week.
In fact, ASX financials have strengthened in the past week as a sector, after being stuck in a 3-month long sideways channel where prices bounced off the $7.55–$7.60 mark three times until testing the $8.40 level once more.
Are BOQ shares cheap right now?
Firstly let’s clearly define cheap. We aren’t talking price here – we’re talking good old fashioned fundamentals, in other words, how the share price is trading relative to its ‘intrinsic’ valuation.
So depending on how one looks at it, they could be viewed as cheap. For example, analysts at the various investment firms covering BOQ are heavily bullish on the stock.
According to Bloomberg data, more than 73% of analysts covering the bank have it as a buy and the consensus price target is $9.90.
Analysts typically won’t advocate for their clients to buy a stock if it is overvalued’; in other words, if its market price is trading above their calculated valuation.
Obviously, shares can be valued in numerous ways, including discounted cash flow, merger & acquisition activity, earnings multiples and relative valuation to peers just to name a few.
In any sense, the brokers come up with an ‘intrinsic’ or ‘fair’ valuation, sometimes even based on a blend of these factors. Then, if the stock is trading below this figure – and a number of other fundamentals stack up as well – it is considered to be ‘undervalued’.
Remember – price is what you pay, value is what you get.
Keep in mind however that just because a stock is trading below its fair value doesn’t mean it’s undervalued. It could be poor value, as well. That’s why a holistic approach is used.
Nevertheless, if 73% of the analysts covering BOQ rate it as a buy, this has at least something to do with valuation and the dislocation between share price and intrinsic or relative value.
For example, JP Morgan, in a recent note on Commonwealth Bank of Australia (ASX: CBA) said it sees the bank underperforming “given…a very stretched relative valuation vs peers”.
The broker also made similar remarks in its assessment of BOQ, stating that, “given the large valuation discount vs peers”, the market might be overlooking key moving parts in the bank’s growth engine.
Morgans also said that it sees “exceptional value in BOQ stock” in a recent note, further hammering in that nail.
In addition to this information, BOQ is also currently trading below the consensus price target, at a 17% discount.
BOQ share price snapshot
Even after the recent surge, in the last 12 months the BOQ share price is down 3% and is underperforming the benchmark. However, this year to date shares have climbed 4% into the green as ASX financials regain strength.
Over the previous 5 days of trading, it has surged another 9%.