If you are wondering whether Capital One Financial’s share price still reflects its true worth, this article walks through the numbers so you can judge the value for yourself.
The stock recently closed at US$206.74, with returns of 2.9% over 1 year, 100.4% over 3 years and 83.9% over 5 years, although the share price has seen a 6.0% decline over 7 days, 13.5% over 30 days and 16.6% year to date.
Recent coverage has focused on Capital One Financial’s position as a large US card and banking provider and how shifts in investor sentiment around financials can affect credit focused names. This context helps explain why the stock can experience sharp moves in either direction, even when long term trends appear steadier.
Our valuation checks suggest Capital One Financial scores 3 out of 6 for being undervalued. Next, we will compare what different valuation approaches say about the stock’s pricing today, and then finish with a broader way to think about value that goes beyond any single model.
The Excess Returns model looks at how much profit Capital One Financial can earn on its equity above its estimated cost of equity, then capitalizes that stream of “excess” value into an intrinsic value per share.
For Capital One Financial, the model uses a Book Value of $173.11 per share and a Stable EPS of $23.23 per share, based on weighted future Return on Equity estimates from 6 analysts. The Average Return on Equity used in the model is 11.90%, and the Cost of Equity is $16.69 per share. That gap translates into an Excess Return of $6.54 per share, supported by a Stable Book Value assumption of $195.26 per share, also sourced from analyst estimates.
Combining these inputs, the Excess Returns model produces an estimated fair value of about $322.63 per share. Compared with the recent share price of $206.74, this framework indicates the stock is 35.9% undervalued.
For profitable companies, the P/E ratio is a straightforward way to think about what you are paying for each dollar of earnings. It captures how the market is weighing the company’s earnings power today against what investors expect and how much risk they see in those earnings.
Higher growth expectations or lower perceived risk tend to support a higher P/E, while slower growth or higher risk usually align with a lower “normal” or “fair” P/E. Capital One Financial is trading on a P/E of 71.16x, compared with an average of 8.05x for the Consumer Finance industry and around 24.54x across its peers.
Simply Wall St’s Fair Ratio is an estimate of what P/E you might expect for Capital One Financial given its own mix of earnings growth, profit margins, industry, market cap and risk profile. For this stock, the Fair Ratio is 26.62x. This is more tailored than a simple comparison with peers or the broad industry because it adjusts for company specific fundamentals. Set against the current P/E of 71.16x, this suggests the shares are trading above that Fair Ratio based view.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. With Narratives, you tell a clear story about Capital One Financial, link that story to your own revenue, earnings and margin assumptions, and see a Fair Value that updates automatically on Simply Wall St’s Community page as new news or earnings arrive. This helps you compare that Fair Value with the current share price and decide what to do, whether you lean toward a lower case built around a US$160.40 view of fair value or a higher case closer to US$310 that reflects a more optimistic outlook on the same company.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
