- If you are wondering whether Commerce Bancshares at around US$48.54 is starting to look like value, or still has more room to fall or recover, this article will walk you through what the current price might be implying.
- The stock has gained 2.2% over the last 7 days, although it remains 7.1% lower over the past month and 17.1% lower over the last year. This may have some investors reassessing both its potential and its risks.
- Recent attention on the broader US banking sector, shifts in interest rate expectations, and periodic concerns about credit quality have all kept sentiment around regional banks in focus. Commerce Bancshares is often included in these wider sector conversations, which can contribute to the kind of price moves observed over the last year.
- On Simply Wall St's valuation checks, Commerce Bancshares scores 4 out of 6. The next sections will compare what different valuation approaches say about the stock and will also outline a more rounded way to think about its value at the end of the article.
Find out why Commerce Bancshares's -17.1% return over the last year is lagging behind its peers.
Approach 1: Commerce Bancshares Excess Returns Analysis
The Excess Returns model looks at how much value Commerce Bancshares creates over and above the return that shareholders are assumed to require. It does this by comparing the bank's estimated return on equity to its cost of equity and then capitalising those excess profits into an intrinsic value per share.
For Commerce Bancshares, the model uses a Book Value of $27.53 per share and a Stable EPS of $4.61 per share, based on weighted future return on equity estimates from 8 analysts. The Cost of Equity is set at $2.37 per share, which implies an Excess Return of $2.24 per share after covering that required return. The Average Return on Equity feeding into this is 13.56%, with a Stable Book Value of $33.99 per share, based on estimates from 7 analysts.
When these excess returns are projected and discounted, the Excess Returns model points to an intrinsic value of about $96.69 per share. Compared with a recent share price of around $48.54, this implies the stock trades at a 49.8% discount to this estimate, indicating a wide gap between price and modelled value.
Result: UNDERVALUED
Our Excess Returns analysis suggests Commerce Bancshares is undervalued by 49.8%. Track this in your watchlist or portfolio, or discover 55 more high quality undervalued stocks.
Approach 2: Commerce Bancshares Price vs Earnings
P/E is a common way to value profitable banks because it links what you pay per share to the earnings that support that share price. In general, higher growth expectations and lower perceived risk tend to justify a higher P/E, while slower expected growth or higher risk usually point to a lower, more conservative multiple.
Commerce Bancshares currently trades on a P/E of 12.71x. This sits slightly above the Banks industry average of 11.26x, but well below the peer group average of 30.74x. This shows how wide the range of valuations can be within the sector. To cut through that spread, Simply Wall St applies its proprietary “Fair Ratio” framework, which estimates what a reasonable multiple could be for this specific company by factoring in its earnings growth profile, profit margins, industry, market cap and risk characteristics.
Because the Fair Ratio blends these company specific drivers, it can be more tailored than a simple comparison with broad industry or peer averages. For Commerce Bancshares, the Fair Ratio is 11.97x, slightly below the current 12.71x. This points to the shares trading somewhat above that modelled level.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Commerce Bancshares Narrative
Earlier it was mentioned that there is an even better way to understand valuation, so this is where Narratives come in as a practical bridge between your view of Commerce Bancshares and the numbers behind it.
A Narrative is simply your story for the company, captured as your assumptions for fair value, future revenue, earnings and margins. The story you believe in is directly tied to a set of numbers.
On Simply Wall St, Narratives sit in the Community page and link that story to a financial forecast and then to an implied fair value. You can compare that with the current price to help decide if Commerce Bancshares looks attractive or expensive on your terms.
Narratives on the platform are refreshed when new information such as earnings updates or major news is added. You can see how different investors arrive at very different views. For example, one Narrative for Commerce Bancshares might assume a much higher fair value based on optimistic profitability assumptions, while another assumes a much lower fair value based on more cautious expectations.
Do you think there's more to the story for Commerce Bancshares? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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