Wells Fargo's (WFC) Stock Price Surge vs. Earnings Growth: A Misalignment or Undervaluation Opportunity?

The Discrepancy Between Price and Earnings: A Closer Look

Wells Fargo & Company (NYSE:WFC) has experienced a meteoric rise in its stock price, with a 32.60% total return compound annual growth rate (CAGR) over the trailing twelve months (TTM) as of October 2025, according to financecharts. This outpaces its earnings growth, which averaged 5.7% annually over the past five years, according to FullRatio. The divergence raises critical questions: Is this a sign of undervaluation, or does it signal a misalignment between investor optimism and underlying fundamentals?

Stock Price Momentum: A Product of Strategic Reforms

Wells Fargo's stock price surge appears to reflect investor confidence in the bank's strategic turnaround. Key drivers include a 15.2% return on tangible common equity (ROTCE) in Q3 2025, cost-cutting initiatives (e.g., $6.1 billion in share repurchases in the same quarter), and a focus on efficiency improvements, according to Yahoo Finance. Analysts project further ROTCE gains, targeting 17–18% in the medium term, according to the same earnings call. These reforms have likely fueled expectations of future profitability, pushing the stock price higher even as earnings growth remains modest.

Earnings Growth: Steady but Unremarkable

While WFC's stock price has soared, its earnings per share (EPS) growth has been more restrained. Over the trailing twelve months ending June 2025, EPS grew by 19.47% year-over-year, and the five-year average stands at 5.7%, according to Macrotrends. This contrasts sharply with the stock's 32% TTM CAGR. The disconnect suggests that the market is pricing in future earnings potential rather than current performance. For instance, the PEG ratio of 0.84-calculated by dividing the P/E ratio (14.40) by the 20.12% TTM EPS growth rate-indicates the stock is undervalued relative to its earnings trajectory, per financecharts' PEG chart https://www.financecharts.com/stocks/WFC/value/peg-ratio.

Valuation Metrics: A Mixed Picture

WFC's valuation metrics further complicate the analysis. Its P/E ratio of 14.40 is lower than peers like JPMorgan Chase (16.08) and Bank of America (14.79), but higher than PNC Financial Services (13.85) and Citigroup (14.74), according to Simply Wall St. This places WFC in a middle ground, suggesting it is neither significantly undervalued nor overvalued compared to its industry. However, the forward P/E of 12.33 and a PEG ratio below 1 imply that analysts expect earnings to accelerate, potentially justifying the current price premium, according to StockAnalysis.

Risks and Opportunities

The key risk lies in whether WFC can sustain its earnings momentum. While the bank's cost-cutting and efficiency gains are promising, its five-year EPS growth of 5.7% lags behind the Banks industry average of 4.5%, per Simply Wall St's past data https://simplywall.st/stocks/us/banks/nyse-wfc/wells-fargo/past. If earnings fail to meet expectations, the stock's valuation could appear stretched. Conversely, successful execution of its strategic goals-such as achieving a 17–18% ROTCE-could validate the current price appreciation.

For long-term investors, the opportunity hinges on WFC's ability to translate operational improvements into consistent earnings growth. The 38.90% stock price increase over the past 12 months, according to MarketBeat, reflects optimism about this potential, but fundamentals must catch up to justify the valuation.

Conclusion: A Calculated Bet on Future Performance

Wells Fargo's 32% TTM stock price CAGR appears to reflect a combination of undervaluation and investor optimism about its strategic direction. While the PEG ratio and forward P/E suggest the stock is reasonably priced for its growth prospects, the modest historical EPS growth (5.7% over five years) raises caution. Investors should monitor WFC's ability to maintain its ROTCE trajectory and deliver on efficiency targets. If successful, the current valuation could prove to be a compelling opportunity; if not, the gap between price and fundamentals may widen into a warning sign.