Is Bank of Nova Scotia (TSX:BNS) Stock a Buy for 2019?

Bank of Nova Scotia’s (TSX:BNS)(NYSE:BNS) stock has been a dog over the past five years. However, it now provides an attractive entry point for investors.

| More on:
The Motley Fool

It’s a fire sale! After the poor performance of Canada’s financial sector last quarter, there are plenty of bargains to be had. As such, it is the perfect time to take a look at Canada’s Big Five banks, the most reliable in the industry.

Interestingly, all five are now trading below historical price-to-earnings (P/E) averages. Over the past 20 years, this has been a reliable buy signal. Every time the banks dip below their P/E averages, they always revert to the mean. At this point, I would be comfortable investing in any of the Big Five. If you are looking for the cheapest, however, that distinction belongs to Bank of Nova Scotia (TSX:BNS)(NYSE:BNS).

BNS stock performance

In 2018, Bank of Nova Scotia limped to the finish line with a 16.49% loss. This was a close second to the worst-performing bank in Canada, Canadian Imperial Bank of Commerce. Looking further out, however, Bank of Nova Scotia shareholders have trailed the pack. Over the past two years, its share price has lost 12% and its five-year return of 5.96% is by far the lowest of the group. Its five-year compound annual growth rate is only 1.2%. In comparison, CIBC, which has a five-year CAGR of 3.2%. Canada’s best-performing bank, Toronto-Dominion Bank, has a CAGR of 7.9%.

The company’s stock price isn’t keeping up with its historical growth rate. It has grown earnings by a CAGR of almost 6% over the past five years, and revenue has grown at an annual pace of approximately 7.3%.

Best-valued bank?

Bank of Nova Scotia is trading below its five-year price-to-book, price-to-sales, and price-to-free-cash flow multiples. Likewise, its current P/E of 9.70 is well below its historical average of 12.1 times earnings. A return to the mean would imply a share price of $82.52 — 21% upside from today’s price of $68.27. Analysts are expecting the company to record earnings of $7.46 in 2019. As such, it is not out of the question that Bank of Nova Scotia could be trading around $90 in one-year’s time.

The company’s Graham Number, a measure of intrinsic value, is $89.08 per share, and analysts have a one-year price target of $84.17 on the stock. Both point to upside of +20% over its current share price.

Best bank for growth?

Bank of Nova Scotia is on pace for 8% revenue growth in 2019. This is tops among the Big Five. It is expected to top the group once again in 2020 with 6.20% revenue growth. This is not surprising, as the company has been on a significant acquisition spree. In 2018, it made just shy of $7 billion in acquisitions. It has been the most active player in the industry.

Earnings-per-share growth is expected to be approximately 7% over the next couple of years. This places it second behind Toronto-Dominion for the highest EPS growth rates.

Foolish Takeaway

Bank of Nova Scotia has been a dog as of late. However, recent acquisitions and its status as one of the best valued banks have it well positioned to outperform in 2019.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien owns shares of TORONTO-DOMINION BANK.

More on Dividend Stocks

investment research
Dividend Stocks

Young Investors: Create Cash Flow With This Top Dividend Stock

If you're a young investor looking for cash flow, you need a strong dividend stock and solid banking program designed…

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

3 Superb Dividend Stocks I’m Ready to Buy

The market is full of great options for income-seeking investors. Here are three superb dividend stocks to buy now.

Read more »

Payday ringed on a calendar
Dividend Stocks

Gen Z Investors: Create a Stable Passive-Income Stream of $188/Month for Retirement

This passive-income stock is perfect for Gen Z investors who don't have much to invest but want to see stable,…

Read more »

exchange-traded funds
Dividend Stocks

2 ETF Bargains You Shouldn’t Miss in 2022

Index ETFs are only discounted when there is a market-wide slump, which is rarer than sector-specific dips, so you should…

Read more »

House Key And Keychain On Wooden Table
Dividend Stocks

2 Real Estate Stocks to Add Growth to Your Portfolio

The right real estate investments, whether they are properties or real estate stocks, usually offer a decent mix of income…

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

2 Canadian Energy Stocks With Ridiculously Fast-Growing Dividends

Canadian energy stocks are gushing cash and there's plenty left for shareholders. Here are two stocks for ridiculously fast-growing dividends

Read more »

retirees and finances
Dividend Stocks

Retirees: 2 Top TSX Dividend Stocks to Buy for TFSA Passive Income

These industry leaders pay attractive dividends for a portfolio focused on passive income.

Read more »

Canadian stocks are rising
Dividend Stocks

2 High-Quality Real Estate Plays to Buy for High-Yielding Dividends

Take advantage of the housing market cooldown by investing in these two quality REITs.

Read more »