Is Scotiabank Stock a Buy?

The Big 6 bank released its fourth-quarter earnings this week, and Motley Fool analysts react.

| More on:
BNS stock

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is Bank of Nova Scotia (TSX:BNS) stock a buy after reporting fourth-quarter 2024 earnings? Motley Fool Canada Chief Investment Officer Iain Butler shares what he looks for in bank earnings releases and his take on whether BNS stock is an investment worth buying today.

Prefer to read? There’s a transcript below.

Transcript

Nick Sciple: I’m Motley Fool Canada senior analyst Nick Sciple, and this is the “5-Minute Major,” here to make you a smarter investor in about five minutes. Today, we’re here to discuss Scotiabank’s fourth-quarter 2024 earnings release.

My guest today to help me do that is Motley Fool Canada Chief Investment Officer Iain Butler. Iain, thanks for joining me once again.

Iain Butler: Awesome to be here, Nick, as always.

Nick: Scotiabank shares are down about 3% this week following the earnings release on December 3. Iain, what was your takeaway from the results?

Iain: Well, anytime I see bank results, my mind immediately goes to just how complicated these earnings releases are. I don’t think it gets any more complex than a Canadian bank when it comes to these releases. There’s just numbers after numbers after numbers and layers and layers and layers.

Sprawling enterprises with loads of intricacy.

And I truly do feel for the people that have to comb through these results with any degree of precision.

That’s not what we’re here to do. And we’re going to speak in fairly broad strokes. And I might just start with how I do think about these bank earnings.

What to look for in bank earnings

I tend to consider a handful of markers: bank profitability, as measured by return on equity; bank growth, as measured by year-over-year change in book value; bank solvency, as measured by the Tier 1 capital ratio; loan development, so how the loan book is progressing as the economy ebbs and flows — so loan development as measured by provisions for credit losses. And then bank valuation, as measured by the price-to-book ratio.

But again, we are here top of the waves. We’ve got less than three and a half minutes to go. So rather than evaluating each of these, we’re going to stick to bank profitability and bank valuation.

Scotiabank’s profitability and valuation

To look at Scotia’s return on equity, the current number is 10.2% for fiscal 2024. That compares to a 10-year average of 12.7%, so a little less profitable than they’ve been over the past decade on average.

Their price-to-book ratio, though, is currently at 1.3 times, and their 10-year average is 1.39 times.

So Scotia is a little bit cheaper than it has been on average over the past 10 years. And then just to sort of square a circle here, one more quick and dirty check that we haven’t mentioned, but it falls into the valuation bucket, is the dividend yield. So Scotia’s current dividend yield is 5.31%. The 10-year average is 5%. So again, that reads as Scotia being a little bit cheaper than it’s been over the past decade.

Is Scotiabank stock a buy?

To summarize that, Scotia is a little less profitable than over the past 10 years and a little cheaper.

The thing is, when we’re evaluating companies to invest in, that combination doesn’t tend to be where opportunity lives. What’s preferable is if there is some discrepancy between the two.

Ideally, we’d have something that’s a little less profitable, but a lot cheaper. Or more profitable and a little bit cheaper. So things are lining up too well at Scotia. And I kind of come away from that saying it looks pretty fairly priced. Not expensive, not cheap.

Nick: So when I hear that, I hear this is a company that needs to show me some results on the top or bottom line, some progress for there to be a case for the stock to really start moving and singing for investors. And I think Scotia might agree with that. The bank’s financial results remain well below the bank’s medium targets. Maybe that’s some of those things that can get the profitability engine moving. Do you think they can still get there? Do you think those targets are realistic for the company? What could that mean for the business looking out in that medium term?

Iain: Yeah, totally. And I think that’s a great way to extend on those last points, that’s indeed where things could get interesting. And I think we’ve lived with Scotia and experienced Scotia go through these stretches where there’s been a differentiation coming into 2024. It traded at book value, and profitability was pretty much pretty similar to what it is now. So that’s attractive. And indeed, it’s been one of the best-performing banks this year.

So if we do stick to return on equity, Scotia has a medium target of achieving a 14% return on equity. It’s been there before historically. It’s been over 20% historically. I don’t know if we can get there. But what that does is provide a great signpost for us to gauge the performance of the business and compare it to how the stock performs from here. So if we see Scotia, the business, moving towards 14% ROE, or achieving that target and the valuation remains as is, that becomes interesting. It’s growing. It’s a profitability, yet it’s remaining similarly valued. It means the market’s not recognizing that improved business quality that we’re getting. So that’s the kind of discrepancy we’re looking for.

And the great thing is a business of this size doesn’t just snap a finger and boost its profitability like that. This is a tanker ship turning, and we’re going to have time. So we’re going to keep our eyes on the situation, see how the bank performs and compare that to how the stock performs. And it might become a very interesting buy opportunity should a discrepancy arise.

Nick: One of the biggest, most important companies in Canada. Going to continue to follow the company. Hopefully the stock becomes more attractive to us in the future for one reason or another. Maybe the stock will get a little bit cheaper. Maybe the company will start to enjoy a little bit higher earnings. Until next time, Iain, thank you for joining us. for this edition of the “Five-Minute Major.” Hopefully we’ll see everybody next time.

Iain: Awesome. Thanks, Nick.

Should you invest $1,000 in Aecon Group right now?

Before you buy stock in Aecon Group, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Aecon Group wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 Iain Butler has positions in Bank Of Nova Scotia and has the following options: short December 2024 $75 calls on Bank Of Nova Scotia. The Motley Fool recommends Bank Of Nova Scotia. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Bank Stocks

A worker drinks out of a mug in an office.
Bank Stocks

Royal Bank of Canada: Buy, Sell, or Hold in 2025?

Royal Bank is down 6% in 2025. Is it time to buy the dip?

Read more »

chart reflected in eyeglass lenses
Stocks for Beginners

Seize the Dip: Investment Opportunities Await This April

If you're looking for one and only one opportunity during a market dip, buy this top stock.

Read more »

hand stacks coins
Bank Stocks

Here’s How Many Shares of IGM Financial You Should Own to Get $1,000 in Yearly Dividends

Besides its attractive dividend income, IGM Financial’s strong long-term growth fundamentals could help its stock outperform the broader market in…

Read more »

A person looks at data on a screen
Bank Stocks

Where Will Bank of Montreal Stock Be in 5 Years?

These factors give Bank of Montreal (TSX:BMO) stock the potential to outperform the broader market in the next five years.

Read more »

calculate and analyze stock
Bank Stocks

Where Will TD Stock Be in 3 Years?

Here are some key reasons why I expect TD stock to reward patient investors handsomely over the next three years.

Read more »

Pile of Canadian dollar bills in various denominations
Bank Stocks

1 Dividend Stock Down 10.2% to Buy Now for Lifetime Income

A high-yield stock with a nearly 200-year dividend track record is a screaming buy right now.

Read more »

calculate and analyze stock
Bank Stocks

Why Smart Investors Own Canadian Financial Stocks

Top Canadian stocks like these could help smart investors get strong returns on their investments in the long run.

Read more »

customer uses bank ATM
Tech Stocks

2 Canadian Bank Stocks to Shield Against Market Downturns

Anchor your portfolio with dividends and stability built to outlast trade war turbulence with Royal Bank of Canada (RBC) and…

Read more »