Bank of America (BAC) is the stock with the highest volume at NYSE. In an average day, nearly 300 million of this company's shares change hands. The stock endured a huge plunge in 2011 and a nice recovery so far in 2012. Many investors expect and hope that the stock will continue its recovery throughout the year as they believe the stock is still undervalued. I definitely agree with those investors who think the stock is undervalued.
Price vs Book Value
10 years ago, BAC's book value was $48.11 billion. Today, the company has a book value of $211.70 billion. This indicates a growth of 340%. In the same period, the company's price to book ratio plunged from 2.18 to 0.39.
Price vs. Revenues
In the last 10 years, Bank of America's revenue grew from $11.36 billion to a massive $29.60 billion. In 2009, the company's revenue was as high as $45.42 billion. In the last decade, the company's revenue growth rate was 160.68%.
Price vs. Cash
Compared to a cash holding of $22.44 billion 10 years ago, BAC currently holds cash of $82.68 billion. The company's cash holdings witnessed a growth of 269% in the last decade.
Price vs. EPS
Bank of America currently earns 15 cents per share. A decade ago, the company was earning 69 cents per share. In the last decade, the company's EPS declined by 78.26%. This is the only metric where the company performed similar to its stock price. Once the economy picks up, BAC's earnings will probably increase too.
Conclusion: By most metrics, BAC is undervalued. I would advice caution though as the company still has a lot of debt, even though it has been reducing its debt since 2009. I would definitely buy BAC and keep it in my portfolio, but at the same time I would make sure my portfolio is well diversified just in case.
Disclosure: I am long BAC.
