Bank of Nova Scotia has delivered a 151.2% total return over the past three years, which puts fresh attention on what the market is paying for the returns it earns on its capital. With the share price around $128.34 and recent headlines around capital deployment and new wealth services, the question now is whether that performance is backed by the quality of the bank's reinvestment decisions.
- Over the last 3 years the stock has returned 151.2%, which raises the issue of whether that kind of share price gain lines up with the returns Bank of Nova Scotia is generating on the equity and capital it deploys.
- The move to increase the normal course issuer bid to 40 million shares suggests management sees buybacks as a meaningful use of surplus capital, which can matter for investors who are trying to judge how efficiently the bank is recycling retained earnings and excess capital back into value per share.
- If you'd rather focus on earnings, this one's for you. See why Bank of Nova Scotia's 16.4x P/E tells a different valuation story.
The stock's next move may depend on whether Bank of Nova Scotia's current price can be explained by the returns it earns on its capital today and what investors expect those returns to be over time.
To determine whether Bank of Nova Scotia's 151.2% three year return aligns with the returns it earns on its capital, you can compare it with other companies using 7 high quality undervalued stocks
Is Bank of Nova Scotia Still Cheap on Excess Returns?
The Excess Returns model starts by asking how profitably Bank of Nova Scotia can compound each CA$ of shareholder equity over time. On current assumptions, the business is expected to earn an average Return on Equity of 13.78%, with a Stable EPS of CA$9.56 per share supported by a Stable Book Value of CA$69.42 per share, both drawn from estimates by 9 analysts. With book value at CA$73.15 per share and a Cost of Equity of CA$5.05 per share, the model attributes an Excess Return of CA$4.51 per share, which points to value creation above the required shareholder return.
The Dividend Discount cross-check, using an annual dividend of CA$4.69 per share, a 72.58% payout ratio and implied dividend growth of 2.66%, suggests those distributions are expected to grow modestly rather than aggressively. News around the expanded normal course issuer bid adds another layer because ongoing buybacks can concentrate those excess returns into fewer shares when the market price, currently CA$128.34, sits below what the Excess Returns framework implies. Find out what Bank of Nova Scotia could be worth using our Excess Returns estimate.
The Bank of Nova Scotia Narrative: What Would Justify Today's Price?
Simply Wall St Narratives for Bank of Nova Scotia pick up where the valuation puzzle leaves off by spelling out which paths for growth, margins and earnings would need to play out for the shares to be worth materially more or less than today’s price on the Community page. Instead of a single output from a ratio or model, Narratives unpack the future that number rests on so you can watch how closely reality tracks those assumptions over time.
One of the top community narratives on Bank of Nova Scotia: roughly fairly valued
"The main factor that has to work in the bank’s favor is that Bank of Nova Scotia continues to grow higher margin wealth, fee, and primary banking relationships…"
Discover why this Narrative puts Bank of Nova Scotia at roughly fairly valued.
One more Bank of Nova Scotia check that belongs beside the price tag
Valuation only tells part of the story for Bank of Nova Scotia, because the research checks behind this analysis have also highlighted specific areas of concern that deserve your attention next. Take a closer look at 1 warning sign before settling on a valuation.
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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