Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) to ascertain if its share price can return to 1,945p.
Initial catalyst
As usual, before we can establish if Standard Chartered can return to its all-time high of 1,945p per share, we need to establish the initial catalyst that took Standard Chartered there in the first place. It would appear that Standard Chartered reached this high back during 2007, amid the wider FTSE 100 rally in the general market euphoria preceding the financial crisis.
However, like much of the market at this time, when Standard Chartered’s shares reached this all-time, the company was trading at a historically high valuation. Indeed, at a price of 1,945p, Standard Chartered was trading at a forward P/E of just under 18 — the highest valuation placed on the company’s shares at any point during the last decade.
But can Standard Chartered return to its former glory?
Nevertheless, Standard Chartered is now a much bigger and stronger bank than it was bank during 2007. As a result, I feel that the bank has all the foundations in place to support a return to its all-time high of 1,945p per share. In particular, since 2007 Standard Chartered’s shareholder equity has expanded around 30% and net income has exploded approximately 50%.
Furthermore, Standard Chartered reported earnings per share of £1.36 for full-year 2012, which implies if the company were to trade at P/E of 18, like it did back during 2007, the banks shares would be worth 2,448p each. This indicates that the bank’s shares could easily surpass their all-time high.
Having said all of that, recent developments within South Korea and slowing economic growth within Asia has put the brakes on Standard Chartered’s growth. Unfortunately, this economic uncertainty has led to Standard Chartered revising down its growth forecasts for the next few years and as a result, the bank now trades at its lowest valuation in a decade.
Moreover, until the bank can return to growth, investors are unlikely to place a place a growth premium, similar to that seen during 2007, on the company’s shares anytime soon.
Foolish summary
All in all, Standard Chartered is now a bigger and stronger bank than it was back during 2007, which leads me to conclude that the company’s shares can make a return to their all-time high in the long term. Still, the bank is unlikely to return to its all-time high anytime soon as economic headwinds in Asia persist.
So overall, I feel that Standard Chartered can return to 1,945p.
