Jim Cramer yesterday said that we have yet to reach the bottom in the banking sector. He talked about how there is not yet a banking run and that Citi traded in the 5 dollar range. What Jim Cramer said is that we are still not near the bottom.
So is Jim right? Was 1990 worse?
Let’s take the case to Citi and see what we get. Following is the graph for Citi and notice the drop in 1990.
It would appear that Jim was right and we have have quite a bit to fall.
Though I am skeptical and decided to calculate the valuation of Citi around the years of 1990. Looking at the share price without the valuation is fool hardy.
I could not find the valuation of Citi for 1990, but did find it for the years 1991 to 1993.
If Jim Cramer is comparing 2007 to 1990, I calculated a pseudo earnings of 0.60. With the share price of around 2-5 then the PE of 1990 is 5 to 8 (approximately). That sounds ok for 1990, but look at 1991 to 1993. Citi was trading with a PE valuation of 2-3. That’s squirrelly.
What’s happening here is that Jim Cramer in his analysis is comparing apples to oranges, not apples to apples. The earnings of 1990 to 1993 are based on the share price of the time, not what Yahoo is displaying. Yahoo in its bid to make things look more logical calculates share prices with respect to all splits. Thus in 1990 Citi traded at less than 5. Yet the real share price was not that, it was the following graph.
Citi traded in the range of 17.5 to 37.5, which implies that Citi traded at a PE ratio of 29. Today the PE ratio of Citi is 27, and is saying that we have already reached the bottom.
I personally feel that we are in a technical sell off due to margin calls. So let’s compare apples to apples. If 1990 is 2007 and 1991 is 2008 then a fair low valuation of Citi is a PE ratio of 10, with a high of 15. 2008 has Citi with an earnings of 2.38, which means that a fair low valuation is 23.80. Looking at the current price of 19.64 what we have is a stock that could have a good value over the long haul. Simply put 1990 is not comparable because we have already gone past 1990 in terms of valuation, and that Cramer got his analysis completely wrong.