Is Citigroup Inc. (C) The Most Profitable Cheap Stock to Buy Now?

Citigroup Inc. (C), one of the world’s largest global banks, has been a subject of intense investor scrutiny amid mixed market performance and shifting macroeconomic conditions. With its stock trading at a discount relative to its book value and analysts forecasting strong upside, the question arises: Is Citigroup a hidden gem in the banking sector, or does its valuation mask underlying risks? Let’s dissect the data to find out.

Valuation Metrics: A Discounted Price Amid Strong Fundamentals

Citigroup’s price-to-book (P/B) ratio of 0.63 as of May 2025 signals a significant discount to its book value per share of $111.54. This ratio, which measures whether a stock is undervalued or overvalued relative to its book value, has historically fluctuated between 0.07 (during the 2008 crisis) and 2.20 (in 2007). Today’s figure suggests the market is pricing in uncertainty, but not yet reflecting the bank’s operational improvements.

Meanwhile, the price-to-earnings (P/E) ratio stands at 10.43, below its five-year average of 12. This low multiple aligns with strong Q1 2025 earnings: net income rose 21% year-over-year to $4.1 billion, with EPS of $1.96 surpassing estimates. Such metrics indicate the stock could be undervalued, especially given its robust revenue streams and cost discipline.

Profitability and Growth: A Turnaround in Progress

Citigroup’s profitability is best gauged through its Return on Tangible Common Equity (ROTCE), a key metric for banks. In Q1 2025, ROTCE hit 9.1%, up from prior quarters and edging closer to the long-term target of 10–11% by 2026. This improvement stems from:
- Revenue diversification: Markets revenue jumped 12% to $5.99 billion, driven by fixed-income and equity trading. Wealth management fees surged 24%, while Investment Banking revenue rose 12% amid strong M&A activity.
- Cost control: Operating expenses fell 5% year-over-year, enabling a positive operating leverage across all business lines.

Despite these positives, some divisions lagged. US Personal Banking posted negative revenue ($313 million), reflecting intense competition and margin pressures in retail banking. However, the segment’s Return on Tangible Equity (ROTE) improved to 12.9%, signaling cost efficiencies.

Analyst Sentiment: Strong Buy Ratings Highlight Upside Potential

Analysts are overwhelmingly bullish on Citigroup, with a "Strong Buy" consensus based on 13 ratings. The average price target of $87.17 implies a 23.49% upside from its May 2, 2025, closing price of $70.59. Notable calls include:
- Wells Fargo ($110 target): Cites Citigroup’s strategic execution and value creation potential by 2026.
- Bank of America Securities ($89 target): Highlights its cross-border dominance and cost discipline.

Even cautious analysts like Goldman Sachs (target: $80) acknowledge Citigroup’s undervalued status, though they temper optimism due to regulatory risks.

Risks and Challenges: Navigating a Volatile Landscape

While Citigroup’s valuation appears attractive, risks loom large:
1. Trade Policy Uncertainty: The stock dropped 10% year-to-date amid fears of U.S. retariffing and geopolitical tensions, which could disrupt global banking revenues.
2. Regulatory Headwinds: Citigroup faces federal reviews of its data management practices and consent orders that may increase compliance costs.
3. Macro Deterioration: A slowdown in corporate lending or rising loan defaults could pressure its $2.7 billion cost of credit in Q1.

Conclusion: A Calculated Gamble on a Turnaround Story

Citigroup’s 0.63 P/B ratio and 10.43 P/E ratio make it a compelling value play, especially given its progress toward a 10–11% ROTCE target. Analysts’ $87.17 average price target suggests the market could reassess its valuation if the bank continues to outperform in trading, wealth, and investment banking.

However, investors must weigh these positives against significant risks, including regulatory hurdles and macroeconomic uncertainty. The stock’s Zacks Rank #4 (Sell) reflects near-term skepticism, but its long-term trajectory hinges on Citigroup’s ability to execute its strategy amid global headwinds.

For risk-tolerant investors, Citigroup offers a high reward-to-risk ratio: a 23% upside potential paired with a solid dividend yield of 3.8% (as of May 2025) makes it a contender for contrarian portfolios. Yet, those with shorter horizons should proceed cautiously—Citigroup’s journey to becoming the “most profitable cheap stock” will depend on navigating a stormy landscape.

In short, Citigroup isn’t without risks, but its valuation, improving ROTCE, and analyst optimism position it as a stock worth considering for long-term investors willing to bet on its turnaround.