On February 9th, Punjab National Bank (NSE: PNB) closed at ₹123.95, almost 5% higher from the day’s low. The company ended up making a bullish pin bar candle on the daily chart.
Shares of PNB have performed quite well in the last few months. Last week, PNB share price gained by over 20%. The company has outperformed Nifty and Sensex returns in the last one week and one month.
PNB is currently trading near its 52 Week high of ₹128.25, growing by over 190% from its 52 Week low of ₹44.40. The bullish rally was supported by strong move in the PSU sector which was triggered after PM Modi’s supportive statements regarding PSU’s
PNB PE Expansion Theory
Let us understand PNB price growth using the idea of PE expansion. PE ratio shows how much investors want to pay for every one rupee of a company’s earnings. PNB’s current PE ratio is at 17.87. This means the market is pricing PNB’s earnings at 17.87 times today.
As per analysts, PNB’s earnings per share will grow to ₹11.42 next year which is a good profit estimate. Now, if the bank keeps showing strong performance and earnings growth, investors will gain more confidence and can accept an even higher PE ratio in future.
We assume PNB’s PE expands by 130% to 41.10 (we multiply current PE by 2.3). This shows investors willing to pay ₹41 for every ₹1 of earnings as its outlook is good.
After applying the expanded PE of 41.10 to next year’s earnings estimate of ₹11.42, we get target share price of ₹469.
So if the increase in PE is driven by good results and positive sentiment, PNB shares can give around 130% returns and reach to ₹469 level. However, such ambitious targets require the assumptions to work out. Company performance and market sentiment need to remain strong over time.
Important supports for PNB
| Support Level | Price (₹) |
|---|---|
| Support 1 | ₹118 |
| Support 2 | ₹101 |
| Support 3 | ₹94 |
PNB's Return on Equity over years
| Time Period | ROE% |
|---|---|
| 1 Year | 2.79% |
| 3 Year | 3.22% |
| 5 Year | -3.01% |
PNB ROA% over time
| ROA% | Time Period |
|---|---|
| 0.18% | 1 YEAR |
| 0.21% | 3 YEAR |
| -0.12% | 5 YEAR |
PNB shareholders pattern
| Category | Ownership Percentage |
|---|---|
| Promoters | 73.15% |
| DII | 13.74% |
| Public | 10% |
| FII | 3.1% |
Final Words
Using PE Expansion theory, we tried to forecast growth for PNB for coming years. While, we cannot deny the fact that PNB is already trading at a PE higher than industry average.
PSU stocks like PNB has experienced a massive bull run. A minor price correction may be due as a linear price move is not considered to be healthy. High earning estimate by multiple analysts is sure a good forecast for the bank.
