Macquarie Group Ltd (ASX: MQG) shares have surged to new 52-week highs on Tuesday and are currently swapping hands at $228 apiece.
Shares in the investment bank have outpaced the broad marker this year to date, having exploded 13% in the last month of trade alone.
This sparks the natural question: Are Macquarie shares now overvalued compared to global banking peers? Let's see what the experts think.
What's driving Macquarie's rise?
Macquarie has been enjoying a stellar run in 2024, with its share price up 24% since January.
Several key factors are contributing to this growth, including its recent strategic moves in infrastructure and lending.
One of the recent highlights is the sale of Macquarie's stake in data centre giant AirTrunk.
Partnering with the Public Sector Pension Investment Board, Macquarie sold its combined 88% interest to private equity giant Blackstone at a $24 billion valuation.
JP Morgan analysts estimate Macquarie will have an additional $1.1–$1.3 billion in performance fees to play with this year as a result of the transaction.
Additionally, Macquarie's banking and financial services (BFS) division is growing rapidly.
The company is capturing more market share in Australia's competitive mortgage sector. In July, Macquarie grew its mortgage book by 1.6%, five times faster than the broader industry's growth.
This pushed its market share in owner-occupier and investor lending to 5.5%. This could impact Macquarie shares.
Are Macquarie shares expensive compared to global peers?
The big question for investors now is whether Macquarie shares are overpriced. To that point, UBS analysts noted that Macquarie's lending book grew by nearly $2 billion in July.
But at the same time, UBS analysts have pointed out that Australian banks, including Macquarie, are trading at elevated valuations compared to sectors like mining, which are facing headwinds from weaker global demand.
The broker says that investors can't avoid the banking or mining sectors given their size, so "tough choices must be made", according to The Australian.
Right now the investment case on Australia's two biggest sectors looks as tough as ever, with Banks trading at extremely high valuations, whilst Miners fret over China fears…
…A switch in these signals could drive further outperformance from banks over miners in coming months.
But the question is whether Macquarie shares are expensive or not. The bank trades on a price-to-earnings (P/E) ratio of 24.7 times.
This compares to several of its global banking peers, as seen in the table below (note this excludes any impact of dividends):
| Bank name | P/E ratio (09/09/2024) | Adjusted for growth estimates |
| Goldman Sachs | 15.7 | 1.58 |
| JP Morgan | 12.7 | 1.53 |
| Morgan Stanley | 17.4 | 2.61 |
| Citigroup | 16.6 | 2.48 |
| Macquarie | 24.7 | 1.61 |
As you can see, Macquarie's P/E ratio is higher than many of its global counterparts.
But does that actually make it expensive? Especially when looking at trailing earnings?
What if we adjust the P/E for estimated growth rates to see what value is on offer?
Here, we obtain the price-earnings-growth (PEG) ratio, which links valuations to growth estimates. From a value perspective, the lower the score, the better.
In this instance, Macquarie is not the most expensive but third on the list of five, with a ratio of 1.61.
That means that for every dollar of estimated earnings growth, investors pay $1.61.
Considering this information, perhaps investors are buying Macquarie shares on the basis of "price is what you pay, value is what you get".
Foolish takeaway
Macquarie shares have reached new highs, but questions about its valuation compared to global peers linger. However, adjusting for growth estimates, the situation isn't as murky.
The stock is up 31% in the past 12 months.
