The RBS (LSE: RBS) share price has been a pretty poor investment to own over the past five years.
Indeed, since the end of 2014, shares in the bank have underperformed the FTSE 100 by a shocking 14% per annum, including dividends.
However, over the past 12 months, RBS’s performance has improved dramatically.
Shares in the bank have returned 21.4% since the end of December 2018, outperforming the FTSE 100 by around 10%. These numbers imply that if you’d invested £1,000 in the share price this time last year, your investment would be worth £1,243 today. The same investment in the FTSE 100 would be worth just £1,170.
The question is, can this outperformance continue or is it time to give up on the RBS share price?
It is a bit difficult to tell what the future holds for the share price until the result of the general election becomes clear at the end of this week.
A Labour majority could spell disaster for the bank and its peers as the party has continuously promised to target the financial sector if it gets into power. On the other hand, the Tories are promising to “get Brexit done” with Boris Johnson’s current deal, which might hurt the financial sector, but most analysts believe Labour’s plans will be more damaging.
Based on current polling, it looks as if Johnson is going to win the contest, which could be good news for the share price based on Labour’s rhetoric regarding the financial sector.
Although Johnson’s Brexit deal could hurt the bank in the short term, over the long run, I think the future is bright for RBS.
And based on the bank’s current valuation, even after its recent performance, the stock looks cheap to me at current levels.
City analysts currently believe that RBS is set to earn 23.8p per share for 2019, putting the stock on a forward P/E of 9.7. On top of this, analysts have the company distributing a total of 22.9p per share in dividends, giving a dividend yield of 9.9% on the current share price.
Further growth is expected in 2020. The stock is trading at a 2020 P/E of 9.4 according to current projections, although the dividend yield is expected to slump to 6.5%.
Still, these are just preliminary estimates. As RBS has recently shown us, it is willing to offer investors a special dividend when the time is right. On that basis, I wouldn’t rule out another special payout next year if the bank meets or beats profit expectations.
The bottom line
So overall, I think the RBS share price still offers value even after its performance over the last 12 months.
The bank has come a long way from its crisis bailout. Now management has returned the group to profit and reinstated its dividend, earnings growth is on the cards. As long as there are no severe economic shocks over the next 12 months, I think investors could be well rewarded in 2020.
- If you'd invested £1,000 in the Lloyds share price a year ago, this is how much it would be worth today
- How I’d invest £25k in a Stocks and Shares ISA to make a million
- This is how much £1k invested in a FTSE 100 tracker 5 years ago would be worth now
- If you had invested £5k into Sirius Minerals' IPO, this is how much it would be worth now
- How I'd invest £1k in a Stocks and Shares ISA today to retire early
- Top shares for 2019
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019