Suffice to say, RBS (LSE: RBS) (NYSE: RBS.US) has had a difficult time since the onset of the credit crunch, with the bank having had many years of losses.
However, it seems as though there is light at the end of the tunnel because RBS is set to deliver its first year of pre-tax profit since before the credit crunch.
Indeed, it is forecast to make pre-tax profits of £1.1 billion this year, with the amount expected to increase to over £3.5 billion in 2014. This translates into earnings per share (EPS) of 16p and 26p in 2013 and 2014 respectively and, although RBS is starting from a very low base, it indicates that profits can grow at a brisk pace once the macroeconomic outlook starts to improve.
Such earnings growth rates are pretty impressive and, with EPS forecast to grow by 62.5% in 2014 alone, RBS looks as though it could prove to be one of the strong growth stocks of 2014. Moreover, when the bank’s price-to-earnings (P/E) ratio of 20.6 is taken into account so as to give the price-to-earnings growth (PEG) ratio, RBS looks extremely attractive, having a PEG ratio of just 0.33.
This indicates that RBS is good value and, were the PEG ratio to increase to just 0.4 (which is still very low), this would see shares trade on a P/E of around 25, which would equate to a share price of 400p. Although a P/E of 25 may sound high, when the previously mentioned growth rate is taken into account it could reasonably be felt that RBS continues to offer good value for money.
Were shares to move up to 400p it would represent capital gains of 21% and, while dividends are not expected to be paid until next year, a lack of income component of total return may not be a dealbreaker for growth-seeking investors.
So, while a current P/E ratio of over 20 may put potential investors off RBS, if it does deliver on its forecast of 62.5% growth in earnings in 2014, it could turn out to be a one of the most attractive growth stocks on the FTSE 100.
