About Citigroup
Citigroup is one of the largest banks in the entire world.
Offering a variety of services including taking deposits and making loans with said deposits in the context of consumer banking (as pretty much every other large bank such as Chase and Bank of America does), commercial banking (i.e., lending to small businesses, predominantly), financial advising on both an individual basis as well as through its investment banking operations, advising companies engaged in or considering engaging in specific deals and transactions, all in all apparently serving somewhere in the neighborhood of 200 million clients worldwide across more than 160 countries.
Citigroup happened to be one of the many financial institutions that found itself in a rather difficult position during the housing and financial crisis in 2008, with its chief executive officer (CEO) just prior to the meltdown asserting that “as long as the music is playing, you’ve got to get up and dance.”
Evidently, the music stopped playing, and, well, you probably know the rest, you know, financial calamity and the global economy was seemingly on the brink of collapse and whatnot.
At any rate, looking back on it, it was always going to be the case that Citi wasn’t going to go under, as given its sheer size and importance to the national and global economies, it would’ve simply had too much of a negative impact and thus it was one of the banks that was bailed out, to a degree, following the financial crisis.
Now, Citi is hopefully in a better overall state and while we aren’t going to harp much further on the morality of the situation in 2008, it is safe to admit that the banking system in America alone is quite complex and notably delicate in certain respects, but at any rate, Citigroup is a very important company that millions undoubtedly rely upon daily.
One of the objective positives entrenched within Citi is the fact that if it were to find itself in any future financial turmoil, there’s a solid likelihood that it would receive some form of government assistance or relief, for better or for worse, depending on how you view it as a taxpayer.
With that, it is rather clear that even though it might be a common fallacy to instantly assume that larger, more established companies are always largely immune to recessionary pressures, a gigantic financial institution such as Citigroup is definitely not, as banking is somewhat cyclical in its own right in that when things are good, they tend to be very good, however, when the music starts slowing and consumers and businesses stop making as many deposits and others might not be able to pay back the loans they took out, let’s just say it pays for a company such as Citi to have a healthy amount of reserves readily available so as to continue its operations.
Considering all of these points, now would be a great time to analyze and discuss this company from the perspective of its recent and current core financials, metrics and other relevant ratios so as to determine whether or not this company’s stock (NYSE: C) is worth considering as an investment for the years and decades to come.
Citigroup’s stock financials
First and foremost, Citigroup is a $77.82 billion company with a share price of $40.66 along with an associated price-to-earnings (P/E) ratio of 6.42 as well as an annually distributed dividend of $2.12, which is currently yielding 5.32% (as of 10/4/2023).
Given all of this preliminary information, it appears as though Citi’s stock (NYSE: C) is in good shape so far, as its price-to-earnings (P/E) ratio is notably low (which makes sense given that its share price is down about 43% over the last five years), well under the commonly held fair value benchmark of 20, possibly presenting an opportunity if the rest of the company’s core figures check out, not to mention that it pays out a healthy annual dividend, rewarding its shareholders for maintaining its shares even after the prolonged drop in share price.
With respect to the company’s balance sheet, Citigroup’s executive team is in charge of tending to and properly managing and deploying around $2.4 trillion (yep, with a “t”) in terms of total assets as well as $2.2 trillion in terms of total liabilities (again, with a “t”), which some might deem as being rather worrisome given that its total assets and total liabilities are a bit close to one another, however, if it is any source of earthly comfort, this is a fairly standard breakdown for similar financial institutions, as, for instance, Bank of America’s balance sheet presently consists of just north of $3 trillion in terms of total assets along with $2.7 trillion in terms of total liabilities, implying that the nature of big banking calls for such an overall structure, which makes sense given the sheer amount of accounts and transactions the company engages in every single day, let alone in a single year.
Therefore, we aren’t really concerned quite yet given that this is seemingly an industry norm among itself and its peers.Moving onto the company’s income statement, Citi’s interest income through its banking division(s) has been stable for the most part, floating in and slightly around the $70 billion mark, however, experiencing a sizable drop to the downside during 2020 and 2021, down to $58 billion and $50.4 billion, respectively, which was to be expected given that many couldn’t likely pay back their loans or perhaps opted not to simply because they received some form(s) of government assistance, however, it is a net positive to find that in its latest displayed figures it crept back up to its original stomping grounds, at just about $74.4 billion, as reported in 2022.
We are glad to find that there was a rebound and Citigroup’s interest income stabilized, however, as previously alluded to, this financial institution, among others, has its fair share of greater overall economic sensitives that can last for as long as years at a time, which is unequivocally something prospective shareholders must consider and be comfortable with in terms of assuming such risk and riding the undulations that follow.
Onto the company’s cash flow statement, Citi’s net income has been positive and stable for the most part, ranging between nearly $11.1 billion (2020) and $22 billion, as reported in 2021, however, as it relates to the bank’s total cash from operations, 2019 and 2020 were a pair of negative years for Citigroup, likely as a result of the COVID-19 pandemic, which we won’t haphazardly cut this company slack on, but we will fully acknowledge that this was an extraordinary period of time for the banking system, let alone the rest of the world as a whole, and, again, the company’s total cash from operations saw a rebound following these years, back to more comforting, normal levels.
Citigroup’s stock fundamentals
Generally, many either assume or find for themselves banking that (get it?) large banking institutions maintain fairly strong profit margins, particularly trailing twelve month (TTM) net profit margins, and while Citi’s displayed margin (on TD Ameritrade’s platform) is objectively high on any account, as it stands against the average of its peers, it is sadly far from impressive.
Specifically, the company’s TTM net profit margin is listed as 17.64% to the industry’s respective average of 29.23%, which surely makes us wonder why there is a large difference between the two.
Perhaps the bank in question isn’t doing the best job in offering the most profitable loans or perhaps its divisions are lending in specialties that aren’t as profitable as others, along with other potential reasons for this being the case.
Regardless, this isn’t the best sign, as, for instance, its competitors such as Bank of America and JPMorgan Chase tout (figures also found on TD Ameritrade’s platform) TTM net profit margins as high as 29.64% and 32.56%, respectively, evidently far greater than Citigroup.
Additionally, TD’s platform lists Citi’s TTM return on assets as sitting at a measly 0.57% in comparison the industry’s relatively low yet much more attractive 1.19%, implying that this company isn’t exactly efficient with its capital either.
Should you buy Citigroup stock?
Citigroup is a large financial institution, in fact, one of the largest in the world, its shares (NYSE: C) are trading at a historically appealing level (referencing its price-to-earnings ratio and its share price relative to what it has been trading at over the last handful of years) and it serves hundreds of millions of clients around the world, helping individuals, small businesses and large businesses and others conduct business, however, its prevailing TTM net profit margin and return on assets are lackluster (to say the least) and like any other major financial institution, it is quite sensitive to the greater overall global economic landscape, which we just simply don’t like and we do think that if one were to be particularly interested in putting some capital behind a quality financial institution, they should perhaps look elsewhere, at least given our opinion gleaned from the aforementioned financial figures and metrics.
Putting all of this information together and in the interest of keeping things short, sweet and to the point, we think it makes the most sense to offer this company’s stock (NYSE: C) a “sell” rating for the time being.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.