Thinking about what to do with National Bank of Canada stock? You are hardly alone. After all, this Canadian banking heavyweight has been making headlines, quietly rewarding long-term investors, and putting up returns that demand attention. Consider this: over the past five years, its share price has soared nearly 169%, and even just this past year, it has climbed 22.3%. That is no fluke. Recent market shifts have further brightened the spotlight on major banks. Persistent talk around rising interest rates and ongoing strength in the domestic economy have sent investors in search of financial stocks with both stability and growth potential.

Of course, not every rally signals a bargain. In the last week, shares have inched up 2%. Over the past month, movement has been flat. Year to date, the return stands at a healthy 15.2%. The big question is whether this momentum means the stock is fairly valued or if there is still untapped opportunity on the table. Based on six key valuation checks, National Bank of Canada is considered undervalued in just 2 of them, giving it a value score of 2. This is food for thought if you are weighing whether to buy more, hold, or take profits.

So, how exactly do we break down those numbers? Let us dig into a few popular methods of assessing stock valuation. Stick around, because after looking at the usual metrics, we will consider an even more insightful approach to understanding what National Bank of Canada is truly worth.

National Bank of Canada scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

The Excess Returns valuation model focuses on how much value a company generates above its cost of equity. For National Bank of Canada, this means looking at how efficiently the bank turns its shareholders' investment into profits compared to what investors could expect elsewhere at similar risk levels.

Currently, National Bank of Canada’s Book Value stands at CA$81.03 per share. Its Stable EPS is estimated at CA$12.19 per share, sourced from a weighted average of future Return on Equity estimates from nine analysts. The estimated Cost of Equity is CA$6.17 per share, which leads to an annual Excess Return of CA$6.02 per share. With an Average Return on Equity of 14.46 percent and a Stable Book Value projected to rise to CA$84.28 per share (using analyst estimates), these numbers suggest solid ongoing profitability relative to equity cost.

According to this model, the intrinsic value per share is calculated at CA$211.73, which is roughly 29.0 percent above current market prices. This indicates the stock is notably undervalued according to excess returns methodology.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for National Bank of Canada.

Our Excess Returns analysis suggests National Bank of Canada is undervalued by 29.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

The price-to-earnings (PE) ratio is often the go-to multiple for valuing profitable companies because it connects the company’s share price directly to its bottom-line earnings. For established, consistently profitable banks like National Bank of Canada, this metric can cut through short-term volatility and offer a quick read on whether investors are paying too much for each dollar of earnings.

What makes a “normal” or “fair” PE ratio? It is shaped by factors such as expected earnings growth, industry risk, and how confident investors are that profits will keep growing. A company with strong growth and a steady track record will almost always command a higher PE ratio than a slow-grower or one facing significant risks.

National Bank of Canada currently trades on a PE ratio of 15.7x. This is above the average for Canadian banks, which stands at 10.3x, as well as the peer group average of 13.5x. While at first glance this premium might make the shares look expensive, the real test is not about averages. That is where Simply Wall St’s Fair Ratio comes in, a tailored metric that considers not just the company’s industry but also its own earnings growth, profit margins, market cap, and risks to suggest what a suitable PE ratio should actually be. For National Bank of Canada, the Fair Ratio is 12.5x.

By comparing the Fair Ratio of 12.5x with the company’s current PE of 15.7x, it appears the stock is priced above what its fundamentals justify right now, even allowing for its solid growth and profitability.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is simply your story about a company, connecting your expectations for its future financials, such as revenue growth, profit margins, and fair value, to the bigger picture of where you think the business is heading.

Unlike traditional models, Narratives encourage you to go beyond the numbers and articulate your outlook, combining industry trends, company strengths, risks, and catalysts. These insights can then be linked directly to a financial forecast and fair value estimate. Narratives make investment analysis more dynamic and personal, offering a powerful tool available right on Simply Wall St's Community page, which is trusted by millions of investors worldwide.

This approach also helps you make buy or sell decisions by comparing your Narrative Fair Value to the current price. Since Narratives are updated automatically when new news or earnings arrive, your investment thesis stays relevant over time. For example, someone optimistic about National Bank of Canada might highlight improvements in digital transformation and integration of recent acquisitions, justifying a fair value as high as CA$166. On the other hand, a more cautious investor who is concerned about geographic concentration or macroeconomic challenges might conclude a much lower fair value of CA$113.

Do you think there's more to the story for National Bank of Canada? Create your own Narrative to let the Community know!

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.

Companies discussed in this article include NA.TO.

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