Owners of National Australia Bank Ltd (ASX: NAB) shares are much wealthier than they were a year ago after a rise of 22%. Holders may be wondering if this is a good time to exit the ASX bank share.
NAB isn't the only bank with impressive double-digit returns in the last year. Macquarie Group Ltd (ASX: MQG), Commonwealth Bank of Australia (ASX: CBA), and Westpac Banking Corp (ASX: WBC) all posted returns stronger than NAB in the last 12 months.
However, interestingly, NAB's gain has occurred without a rise in profit, which is what it normally takes to send the share price of profitable ASX blue-chip share higher.
Recent operating performance
If a company grows its profit at a good pace, this can spur the share price to go higher without necessarily making the business more expensive. For example, if the profit rises 10% and the share price rises 10%, the price/earnings (P/E) ratio hasn't changed, and it doesn't seem any more expensive.
However, in the FY24 result, NAB reported its statutory net profit after tax (NPAT) declined 6.1% to $6.96 billion and cash earnings dropped 8.1% to $7.1 billion. Remember, the NAB share price has risen 22% in the last 12 months.
Of course, share prices are typically focused on future potential earnings rather than the past. Let's look at the projected profit and how high the P/E ratio has become.
NAB share price valuation
The broker UBS forecasts NAB's profit could rise slightly to $7.25 billion in FY25. This level of projected profit puts the current NAB share price at close to 17x FY25's forecast earnings, which is higher than it has traded on average over the last several financial years, according to Commsec.
The broker UBS suggests that NAB could improve some of its structural disadvantages by improving its customer satisfaction score and making inroads in gaining market share in customer deposits in 2025. At the last count, it had a 13.8% market share. However, UBS suggested that the mortgage strategy was "more urgent now."
UBS also noted that NAB outlined plans at its AGM in December to improve on its recent momentum over previous years. The broker said NAB's business banking had a 21% market share and made 43% of group earnings, which underpinned NAB's financial and operating success. However, there were "structural headwinds and increased competition and capital targeted to this sector".
My verdict on NAB shares
If an investor has held NAB shares for years and years and wants to keep holding, I'd understand that viewpoint. They may be sitting on a large capital gain (and potential tax hit with a sale), and they may like the regular dividend payments that NAB pays.
However, if an investor was looking to try to beat the market, I'd say now is the right time to sell shares. Profit is expected to be less than $7.2 billion in both FY26 and FY27. In other words, it's not going anywhere fast.
NAB shares are noticeably more expensive these days, with a higher P/E ratio. There are other ASX shares that could provide better returns in the long term. For what it's worth, UBS also calls NAB shares a sell.
