- The YTD return of NAB has been a decent 12.48% so far, as of the last closing of AU$33.07 on 13 April 2022.
- NAB is currently trading over its 200-day moving average.
- Investors needs to do proper valuation of a company to decide whether the current share price is fairly valued to be bought or is overvalued.
National Australia Bank Limited (ASX:NAB) has come on investor’s radar, after the bank’s share price surged to AU$33.09, the highest level in the last four years. NAB shares have been consistently outperforming the broader market index ASX 200 this year by a fair margin.
Image Source: © Tktktk | Megapixl.com
The year-to-date (YTD) return of this AU$106 billion bank stands at a decent 12.48% so far, as of the last closing price of AU$33.07 on 13 April 2022, while the ASX 200 has delivered a negative return of 1.33% in the same period. NAB shares are also trading at a dividend yield of 3.85%, giving investors, especially dividend seekers, another incentive to latch on to NAB shares.
What does the chart say?
Looking at NAB stock chart for the past one year, the stock has consistently been moving in an uptrend, except for a minor hiccup around January and February 2022. As can be seen from the chart below, NAB had been trading above its 200-day Simple Moving Average (SMA) after which the banking stock briefly dropped below it in the first two months of this year, only to rebound again.
Image Source: Refinitiv
The territory above 200-day SMA for any stock is considered to be a bullish one and depicts a strong rally in the stock. On multiple occasions, the stock has also taken support around this moving average, which again shows buyers’ willingness to buy the dip for the last one year.
However, looking at the RSI (Relative Strength Index) indicator, the stock seems to be in an overbought zone. The current RSI reading of 74.7 would probably make it uncomfortable for new entrants to buy the stock at current levels. Therefore, investors must do a proper due diligence and adhere to robust risk management before taking the plunge.
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What’s supporting the rally?
One of the major drivers of the NAB share price is the expectations of interest rate hike in Australia. Although the Reserve Bank of Australia (RBA) is yet to make a move in the direction of bumping up interest rates from the historic lows, but many economies like the US have already gone ahead with their first rate hike after the COVID-19 pandemic.
Inflation has been running hot, stoked by red-hot prices of crude oil and other commodities due to the Ukraine-Russia war, which has been fuelling supply chain disruptions. This has been keeping central banks across the world on their toes to be prepared to tame inflation.
Banks and other financial institutions such as lending or insurance firms generally tend to flourish in an increasing interest environment. This is due to the fact that higher interest rates help these financial institutions to enjoy higher margins.
Rising share prices tend to appeal to investors as they usually indicate improving financial health of a company. However, not every rising stock is ideal to be included in a portfolio. Investors needs to do proper evaluation of a company to decide whether the current share price is fairly valued to be bought or is overvalued.