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Bank of America (NYSE: BAC) has done a great job at winning over investors in recent times. The second-largest bank in the U.S. by assets has seen its shares soar 88% since late October 2023. But they're still trading about 14% off their all-time peak, which might prompt some investors to take a closer look.
Should you buy this financial stock while it's less than $50?
A banking giant
Because Bank of America has been around for such a long time, tracing its roots back to 1865, the company has developed into a enormous financial services entity that can serve a wide range of customers. This includes individuals and small businesses all the way to multinational corporations and governments.
Bank of America is a diversified giant. Consumers can sign up for checking and savings accounts, get credit cards or mortgages, and handle their investments. Corporations can raise equity or debt financing, and even get advice on mergers and acquisitions. This setup is beneficial because it means the business surely has whatever product or service you are looking for.
This also means Bank of American's revenue comes from many different places. In 2024, the largest revenue source was consumer banking, representing 42% of the business. But the wealth and investment management, global banking, and global markets divisions also were key sales drivers.
Consequently, the business has built up a wide economic moat. This helps protect Bank of America's position in a very competitive industry. One durable competitive edge comes from switching costs: as customers get locked in with multiple products their interest in leaving declines. Another advantage is scale. Being able to spread large fixed costs across the huge revenue base means consistent profits.
Warren Buffett-led Berkshire Hathaway is a major shareholder, with a 10% stake. The Oracle of Omaha certainly appreciates businesses that have staying power. Bank of America's diversified offerings and its wide moat definitely put it in this category.
Earnings power
One important factor that can have a big influence on how well a stock performs is the trajectory of earnings. Bank of America's profitability is notable. During the past decade, its net profit margin has averaged 26.2%.
Investors should think about what will drive higher profitability in the next few years, and thus boost the share price. Bank of America's net interest income decreased year over year in 2024, after soaring between 2021 and 2023. This may signal that the benefits of higher interest rates are fading.