Discover Two Simple Methods to Evaluate ANZ Share Price Effectively
The ANZ Banking Group share price is regularly under scrutiny, currently trading at approximately $37.11. ASX bank shares represent about one-third of the Australian stock market by market capitalization. Within the financial sector, these shares are the most actively traded investments.
Evaluating ANZ Share Price: Two Simple Methods
Investors seeking to understand how to evaluate the ANZ share price can rely on two primary methods: the Price-to-Earnings (PE) ratio and the Dividend Discount Model (DDM).
Using the PE Ratio
The PE ratio serves as a valuable indicator by comparing a company’s share price to its earnings per share (EPS). Currently, ANZ’s PE ratio stands at 17.3, based on its FY24 EPS of $2.15. This ratio can be utilized in three straightforward ways:
- Analyze the PE ratio intuitively: buy if low, sell if above 40x.
- Compare ANZ’s PE ratio with other banks or sector averages.
- Calculate a valuation by multiplying EPS with an appropriate PE multiple.
For example, if investors believe ANZ warrants at least ten times its profit, the target share price would be $21.50 (calculated as $2.15 x 10). Comparing the current share price of $37.11 with a sector average PE of 20 indicates potential undervaluation.
Applying the Dividend Discount Model
The DDM offers a more robust approach for valuing bank shares due to consistent dividends. This model requires the most recent full-year dividends and a growth rate assumption. It calculates share price using the formula:
Share Price = Full-Year Dividend / (Risk Rate – Dividend Growth Rate)
- Last year’s dividend was $1.66.
- Risk rates considered ranged from 6% to 11%.
Using an adjusted dividend of $1.69, the valuation method yields a share price of $35.74. Dividends can be expected to grow, contributing to the final valuation outcome.
| Growth Rate | Risk Rate 6% | Risk Rate 7% | Risk Rate 8% | Risk Rate 9% | Risk Rate 10% | Risk Rate 11% |
|---|---|---|---|---|---|---|
| 2% | $42.25 | $33.80 | $28.17 | $24.14 | $21.13 | $18.78 |
| 3% | $56.33 | $42.25 | $33.80 | $28.17 | $24.14 | $21.13 |
| 4% | $84.50 | $56.33 | $42.25 | $33.80 | $28.17 | $24.14 |
Further Considerations for ANZ Share Price Analysis
Using the PE ratio and DDM as starting points can facilitate deeper analysis. However, seasoned analysts recommend extensive qualitative research. This may include examining economic indicators, growth strategies, and consumer sentiment prior to making investment decisions.
Investors are encouraged to explore these methods to gain insight into the ANZ share price effectively. Accessing resources and tutorials can significantly enhance understanding in this area. Investing wisely requires thorough evaluation and ongoing market analysis.
