Is IDFC First Bank overvalued or undervalued?

As of 12 May 2025, the valuation grade for IDFC First Bank has moved from fair to expensive, indicating a shift towards overvaluation. The bank is currently assessed as overvalued based on its PE ratio of 34.38, a Price to Book Value of 1.38, and a PEG ratio of 0.00. These ratios suggest that the stock is trading at a premium compared to its earnings growth potential, which is further underscored by a low return on equity (ROE) of 4.02% and a return on assets (ROA) of only 0.46%.
In comparison to its peers, IDFC First Bank's valuation stands out, particularly when looking at other banks in the sector. While specific peer comparisons were not provided, the high PE ratio relative to typical industry standards indicates that the market may be overestimating future growth. Additionally, despite a strong performance in the short term, with a year-to-date return of 14.36% compared to the Sensex's 5.58%, the long-term outlook appears less favorable, as evidenced by a 1-year return of -7.03% against the Sensex's 7.57%. This combination of factors leads to the conclusion that IDFC First Bank is currently overvalued.