"Any options on if CYB is oversold or not. Will it bounce from...

"Any options on if CYB is oversold or not. Will it bounce from these levels as it has done in the past?"

I'm not too sure what the stock price will do in the short-term or even the medium-term, but I'm happy to have a stab at answering the first part of your question, namely whether or not the stock is oversold.

And the only way I know how to do that is by looking at valuation.

Starting with a raw P/E multiples:

Based on CYB's prospective P/E of 10x, the stock looks relatively cheap in absolute terms, as well as compared to the prospective P/E's of Australian banks:

ANZ = 11.8x
BOQ = 11.7x
CBA= 13.3x
NAB = 12.4x
WBC = 11.9x

But looking at just vanilla P/Es is a bit misleading, because it overlooks the relationship between valuation multiples and financial returns being generated on shareholder capital.

As the chart below shows, for a higher ROE, the market is prepared to ascribed a higher Price-to-Book Value multiple.



Based on that chart, being right on the line of best-fit, CYB looks fairly priced, compared to its Australian peers.

Of course, there is one major fundamental difference between CYB and the major Australian banks, and that is that - unlike the mature, ex-growth, major banks in Australia whose ROE's are actually coming uonder pressure - CYB is at a quite immature stage of its corporate evolution, and its ROE is still increasing (when it was liberated from NAB, its ROE was less then 5%, and it was trading on a Price-to-Book ratio of around 0.5x).

As the arrows illustrate, if CYB continues to increase its ROE then, all things being equal, there should be an ongoing re-rating in its Price-to-Book, and hence its share price should increase (providing, of course, that no damage occurs to the book value of the company).

In other words, the answer to the question as to whether CYB is cheap today, lies in the separate question (and one that is far easier-to-answer, I think), of:

Will CYB's management be able to continue increasing the company's ROE over the next few years?

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