Are Standard Chartered shares massively undervalued?

Standard Chartered (LSE:STAN) shares have fallen 22% in the month. It was one of the biggest victims of the banking crisis that started with Silicon Valley Bank in the US.

For me, the sell-off in banking stocks is overdone, especially with Standard Chartered. Asian and Middle East focused banks have very strong fundamentals, and with their share prices down, it looks like a steal.

So, let’s take a closer look.

No SVB

Let’s start by highlighting that Standard Chartered is very different from Silicon Valley Bank, a technology financier that had to sell bonds at a loss while depositors had to withdraw.

Large international banks have a larger deposit base, less reliance on the risky technology sector, and larger bond holdings. It is also important to note that when these banks also have unrealized bond losses, stemming from rising interest rates, the majority of bonds owned will be held over to maturity.

So, I truly believe that this sale is a no-brainer.

However, there are risks that have been around for some time. This has to do with a slowing global economy and extremely high interest rates, which can lead to defaults, rising bad debts, and ultimately disruption costs.

Valuations and fundamentals

Standard Chartered is very safe. The liquidity coverage ratio (LCR), a measure of the amount of cash-like assets a bank has, is solid. Chief Executive Bill Winters recently said that LCR was at 147% before SVB and Credit Suisse got into trouble, and “now higher“without announcing the current level.

This should put investors’ minds at ease.

But it hasn’t gone far, and that’s why the stock price has fallen. It’s currently trading below 600p, and I think it’s a great buy here.

The growth-focused bank trades with a very low price-to-earnings (P/E) ratio of 7.1 and even the lowest dividend yield currently stands at 2.5% – not bad. The P/E is lower than the average of the index, around 12, and lower than the stock that was previously traded.

Undervalued? Well some analysts certainly think so. Analysts at Berenberg raised their target price on the consumer bank from 750p to 1,000p in February, saying “more visible“independent power.

“While a potential takeover could provide a backstop for the stock, our attraction to Standard Chartered is based on its underappreciated unique global business strength,” said Berenberg.

And I think they have a good point. It is among the most growth-oriented banks FTSE 100with most of the revenue coming from fast-growing markets in the Middle East and Asia.

In early February, Goldman Sachs reduced its stance on Standard Chartered shares to ‘neutral’ from ‘buy’. However, it should be noted that Standard Chartered was trading around 100p more during the decline.

I bought Standard Chartered shares because they were falling in price.