If you are watching Banco de Sabadell right now, you are not alone. Investors everywhere are weighing whether this Spanish bank's jaw-dropping run is just the beginning or if there is turbulence in store. After a spectacular 70.2% jump so far this year, and a brutal long-term climb of 1,275.3% over the last five years, you might be wondering if there is any runway left. Although the stock has cooled off in the last week and month with drops of 4.2% and 6.4% respectively, that hardly dents the overall trajectory. In fact, these short-term moves can sometimes be a healthy sign of recalibration as the market digests recent merger rumors and macro shifts within Spanish banking.

The question now, of course, is whether Sabadell is still undervalued, or if most of the upside has already been captured. By crunching the numbers, Sabadell clocks in with a value score of 4 out of 6. This means it passes four key undervaluation checks. That places it firmly in “potential bargain” territory, but prompts a deeper look at what those checks are and whether they actually capture Sabadell’s unique situation.

Next, we will break down the various valuation methods and see how the company stacks up by the numbers. Stick around, because after we cover the standard approaches, we will also explore one more perspective that may give you an even clearer edge.

Why Banco de Sabadell is lagging behind its peers

The Excess Returns model evaluates a bank’s return on invested capital above its cost of equity, helping to identify whether it consistently generates value beyond what shareholders expect. For Banco de Sabadell, the Excess Returns framework offers a direct perspective on the profitability and sustainability of its business compared to the capital deployed by shareholders.

Based on current data:

Book Value: €2.73 per share

Stable EPS: €0.35 per share
(Source: Weighted future Return on Equity estimates from 9 analysts.)

Cost of Equity: €0.26 per share

Excess Return: €0.08 per share

Average Return on Equity: 12.55%

Stable Book Value: €2.77 per share
(Source: Weighted future Book Value estimates from 7 analysts.)

By comparing excess returns to the company’s cost of equity, this method estimates an intrinsic value of €3.93 per share, which is 19.4% above the recent market price. This suggests a notable margin of undervaluation, with Sabadell’s ability to generate healthy profits on its equity investments appearing particularly attractive compared to peers.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Banco de Sabadell.

Our Excess Returns analysis suggests Banco de Sabadell is undervalued by 19.4%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

The Price-to-Earnings (PE) ratio is the preferred valuation metric for profitable companies like Banco de Sabadell because it directly relates the market’s price for a share to how much profit each share generates. Investors focus on the PE ratio to quickly gauge whether a stock is expensive or cheap relative to its earnings power. This makes it especially useful for banks that turn steady profits.

A "normal" or "fair" PE ratio depends on a company’s expected growth and the level of risk it carries. Fast-growing, lower-risk businesses typically command higher PE ratios. On the other hand, slower growth or higher risk pushes the fair level down.

Banco de Sabadell is currently trading at a PE of 8.3x. For context, the average PE in the Banks industry is 10.2x and the direct peer average sits at 10.5x. On paper, Sabadell looks cheaper than both benchmarks. This suggests the market might not be fully pricing in its earnings.

However, beyond these simple comparisons, Simply Wall St’s proprietary Fair Ratio metric takes a more nuanced view. It factors in Sabadell’s expected earnings growth, profit margins, its size, risk profile and industry specifics. For Sabadell, this Fair Ratio comes in at 9.0x. This indicates what investors should pay if all fundamentals and risks were accurately reflected in the price. This approach provides a more tailored benchmark than the broad industry average because it captures Sabadell’s unique business story and outlook.

Comparing Sabadell’s actual PE (8.3x) with its Fair Ratio (9.0x), the difference is noticeable but not drastic enough to claim a deep discount. It suggests the current price is modestly below what would be considered fully fair, pointing to a slight undervaluation but not an extreme bargain.

Result: UNDERVALUED

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's an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply the story you believe about a company’s future, combined with your assumptions for its revenue, earnings and profit margins, which are then translated into a calculated fair value.

Rather than relying solely on historic ratios or analyst consensus, Narratives link your unique perspective—whether you think Sabadell will thrive or struggle—to real forecasts and a dynamic fair value. This empowers you to invest with confidence, using your own reasoning instead of just market noise.

Creating or exploring Narratives is easy and accessible on Simply Wall St’s Community page, where millions of investors share their thinking about companies just like Banco de Sabadell. As conditions change, Narratives are updated automatically when new information, such as news or earnings, emerges. This helps you react quickly and base your buy/sell decisions on up-to-date insights rather than outdated data.

For example, some investors see Sabadell’s digital transformation and strong Spanish lending as a reason for a much higher fair value, targeting €4.0 per share, while others are more cautious about Spain’s local risks and set their target as low as €2.3. Narratives help you plot your own path between those views by making your reasoning clear and actionable.

Do you think there's more to the story for Banco de Sabadell? 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 SAB.MC.

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