The price-to-earnings (P/E) ratios of the four major banks have now dropped to only 5 times.

As of the close on Double Eleven, the dynamic P/E ratios of the four major banks are as follows:

Industrial and Commercial Bank of China, 4.7 times.

Agricultural Bank of China, 4.72 times.

Bank of China, 5.05 times.

China Construction Bank, 4.83 times.

The average P/E ratio of the four major banks is less than 5 times.

There are even banks with lower P/E ratios than the four major banks.

Dynamic P/E ratios below 4 times: Guiyang Bank at 3.13 times, Huaxia Bank at 3.41 times, Industrial Bank at 3.68 times, Bank of Beijing at 3.69 times, China Everbright Bank at 3.8 times, Bank of Shanghai at 3.81 times, Changsha Bank at 3.9 times, CITIC Bank at 3.98 times.

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Dynamic P/E ratios below 5 times: Chengdu Bank at 4.02 times, Jiangsu Bank at 4.06 times, Ping An Bank at 4.12 times, Chongqing Rural Commercial Bank at 4.14 times, Nanjing Bank at 4.25 times, Hangzhou Bank at 4.45 times, Qilu Bank at 4.46 times, Jiangyin Bank at 4.47 times, Suzhou Agricultural Bank at 4.49 times, Shanghai Rural Commercial Bank at 4.5 times, Bank of Communications at 4.63 times, China Zheshang Bank at 4.65 times, China Minsheng Bank at 4.76 times, Wuxi Bank at 4.83 times, Zhangjiagang Bank at 4.86 times, Xiamen Bank at 4.96 times, and Suzhou Bank at 4.96 times.The dynamic price-to-earnings (P/E) ratio of the vast majority of bank stocks is less than 5 times.

Many investors do not understand what a P/E ratio of 5 times means.

Today, I will explain the value of a 5 times P/E ratio.

Value one: A P/E ratio of 5 times means an asset return that doubles in 5 years.

P/E ratio = market value / net profit.

A P/E ratio of 5 times represents the net profit of 5 years, equal to the current market value.

This indicates that if this net profit can be maintained, the profit earned in 5 years can be comparable to the market value of a bank.

Would you be willing to spend 10 million to buy a company that can earn 2 million a year, and recover your 10 million cost in 5 years?

This is the essence of a 5 times P/E ratio.

The question is whether the net profit of these 5 years is stable, and whether it can ensure that the market value of the company is earned back in 5 years.But if you think about it carefully, will the net profit of banks fluctuate significantly?

Actually, it won't. Even if there is a slight decline, it might not double in 5 years, but it will double in 6 years.

And a price-to-earnings (P/E) ratio of 4 times means that the asset return can double in 4 years, which is really astonishing.

You say that this kind of investment has no value and no cost-effectiveness, which is impossible.

Value two: A P/E ratio of 5 times means a 6% annual dividend return.

A P/E ratio of 5 times is a net profit of 20% of the market value, so the dividend rate is 6%.

Because most banks will choose a stable dividend.

And the dividend ratio is about 30% of the net profit, which is 20% * 30% = 6%.

In fact, in the past two years, the dividends of the four major banks have almost all exceeded 6%.

Even small banks, with a dividend rate less than 6%, are all above 5%, which can be said to be very strong.What kind of investment can currently offer a stable return of more than 6%?

Compared to the 5% return of a ten-year U.S. Treasury bond, the dividend rate is even higher.

This is not the key point. 30% of the net profit is used for dividends, and 70% of the net profit remains in the listed company.

In this case, shouldn't the market value of the listed company further increase?

Many people have been frantically grabbing U.S. Treasury bonds recently, believing that a stable return of 4.5-5% is of very high value.

But in fact, the dividends of bank stocks also far meet this return rate, and the actual investment return is quite good.

Looking at the long term, the dividends of banks have almost all filled the rights, which is a real return of gold and silver.

Value three: a price-to-earnings ratio of 5 times implies a 50% rise in space.

Many people will ask, how is the 50% rise in space calculated.

When a company has no growth expectations, its reasonable price-to-earnings ratio range is between 5-8 times.Translate the following passage into English: Corresponding investment returns of 12.5-20%.

Perhaps many people would find it incredible, but the actual returns are just like this.

A price-to-earnings ratio of 5 times means that a company with a market value of 100 billion yuan has a profit of 20 billion yuan per year.

Wouldn't you invest in such a company?

Even if the market value increases by 50%, the annual return rate is still 13.33%. Wouldn't you make such an investment?

Currently, those banks with a price-to-earnings ratio of less than 4 times have a net profit that accounts for more than 25% of the market value each year, but they are still ignored.

Theoretically, these bank stocks have a lot of room for speculation, not just 50%, from 4 times to 8 times, nearly a 100% space.

Here are some overseas banks with dynamic price-to-earnings ratios.

Bank of America is 7.57 times, Citibank is 5.93 times, and HSBC is 31.17 times, generally higher than domestic banks.You speak so highly of bank stocks, so why don't they rise?

A potential annualized return rate of 20%, a 50% price increase space, can't the capital see it? Why not buy it?

In fact, there are several reasons.

Firstly, the return on equity of banks is not that high.

The net assets of banks and their market value are not the same thing, and most banks are undervalued.

For example, the price-to-book ratio of Industrial and Commercial Bank of China is around 0.5, which means that the net assets are nearly double the market value.

That is, a market value of 100 billion yuan, with a net profit of 20 billion yuan, but behind it is a total asset of 200 billion yuan.

In this case, the actual return on net assets is only about 10%.

It's just that investors can buy bank stocks at a net asset discount rate of 0.5 in the secondary market.

The real return on net assets is not as high as 20-25%, that is, the growth rate is actually very low.If this algorithm is followed, whether the bank's valuation is really low, and by how much, is open to debate.

Secondly, the expected growth rate of banks is indeed debatable.

The expected growth rate of banks has already started to move in the negative direction.

Especially this year, the bank's lending side, not only has reduced the interest rate on loans, but the corresponding customers are also continuously decreasing.

You must know that the main source of profit for banks is the interest spread.

That is, a certain interest is given to depositors, and then it is lent to borrowers and enterprises, they pay the interest, and the bank earns the spread.

When the supply of funds on the lending side is excessive and the loan interest rate decreases, the bank's profits will be invisibly compressed.

There are also some cases that cannot be repaid, which will become bad debts, and the disposal of non-performing assets has been relatively difficult in recent years.

The asset discount is fierce, which means it is another potential loss.

Third, the bank's market value is too large and requires a lot of speculation funds.The high market value of banks is actually a significant issue.

A large market value implies that a substantial amount of capital is needed for speculation, but after large capital enters, it becomes difficult to find a buyer to take over the position.

This is because large capital entities are aware of the strategy to buy at low valuations and sell at high valuations.

Once the valuation reaches a high level, there are no more funds willing to take over, and there is no room for any stories or imagination.

This is a paradox that directly leads to the absence of large capital speculating in the banking sector; instead, only scattered funds are involved.

At the same time, these funds are not willing to speculate on the valuation of banks, and at most, the stock price only rises to a level of 5-6 times before falling again immediately.

Industries that cannot tell a compelling story find it difficult to make a significant impact in a market with insufficient capital.

The stock market is different from ordinary investment markets; it is a public market.

Perhaps a company with an annual profit of 20-25%, you would invest in it without hesitation.

However, a listed company with a 20-25% return, you would not invest in it, as the bank's rate of return is only on paper.Even if this rate of return may be achieved in the long term, there is currently no urgency to buy. Capital is unwilling to wait and consume itself, and the market will show a cyclical back and forth. Valuations are always fluctuating, and the choices of large capital are always correct. Retail investors can lie in wait in advance, and if they can accept a dividend of about 6%, they can also wait patiently for the time when the valuation is repaired.