WFC - Citigroup's Price To Book Value Ratio Is Justified - It's Still A Hold
2024-06-09 08:19:46 ET
Summary
- Citigroup's low Price to Book Value Ratio raises questions about the market's valuation of its equities.
- Factors such as its expensive liabilities, lack of critical mass, and loss-leading assets contribute to Citigroup's low Price to Book Value Ratio.
- Although its business model is flawed, its inflated cost base may offer opportunities to improve margins.
- Things may be changing in Mexico, and this business needs to be more fully considered.
- Although it should probably be a Sell, for now, it's a Hold.
For years, the bull case for Citigroup Inc. ( C ) has centered around the persistent discount that the market has valued its assets and liabilities at. Year after year, Citi's Price to Book Value Ratio has been significantly lower than its peers. Bulls are confident that the market has it wrong. Yet, just as no one would ever buy something that they believe is overpriced, unless they were forced to, no seller would ever sell Citigroup’s stock if they believed it was underpriced. The price of a security reflects the collective judgement of tens of thousands of investors, backed by the weight of money. So when considering if Citigroup’s equity is a Buy merely due to a low Price to Book Value Ratio, the following questions need to be considered.
- Is the market really systematically mis-pricing Citigroup’s assets and liabilities?
- Is there something different about Citigroup’s assets and liabilities compared to those of other banks?
- Am I smarter than the rest of the market?
- Is my judgement inherently better than a seller’s judgement?
- Do I know something that sellers don’t know? or,
- Do sellers and the rest of the market know something that I don’t?