One Wells Fargo Center in Charlotte, North Carolina. Image source: iStock/Thinkstock.

Wells Fargo (NYSE:WFC) has made its fair share of mistakes over the years, but investors know better than to bet against its stock. The nation's third biggest bank by assets is the least shorted stock on the KBW Bank Index, which tracks 24 of the nation's leading lenders.

Only 0.42% of Wells Fargo's outstanding shares are currently sold short, according to data from That compares to an average short interest ratio of 3.7% on the large-cap bank index. The next closest bank is JPMorgan Chase (NYSE: JPM), which has a short interest of 0.63%.

10 Least Shorted Bank Stocks on the KBW Bank Index

Percent of Shares Sold Short

Wells Fargo


JPMorgan Chase


Bank of America


First Niagara Financial


US Bancorp


Bank of New York Mellon




Northern Trust


PNC Financial


Capital One Financial


Data source:

On one hand, this is surprising. I say that because shares of Wells Fargo trade for a 47% premium to the bank's book value. That is much higher than the nearly 40% discounts that shares of Bank of America and Citigroup trade for. It's well above JPMorgan Chase's valuation as well. Shares of the nation's biggest bank by assets trade for an only 7% premium to book value.

This suggests that Wells Fargo's shares have further to fall than those of its megabanking counterparts if the industry takes a turn for the worse. And, to be clear, this isn't an unreasonable thought, given the upcoming vote in the United Kingdom over whether to separate for the European Union, in addition to the fact that the Federal Reserve has intimated recently that it may soon clamp down further on big bank profits by requiring them to reduce leverage.

On the other hand, however, there's little doubt that Wells Fargo has earned its lofty valuation. Even though interest rates are near zero, which crimps bank profits by reducing the income from their loan and securities portfolios, it continues to earn a double-digit return on equity. Its ROE last year was 12.7%. That exceeds Wells Fargo's estimated 10.4% cost of equity capital and thus means that the California-based bank is creating value for its shareholders despite the challenging environment.

Wells Fargo also proved before, during, and after the financial crisis that it's one of the most prudently run banks in the country. It avoided the most toxic types of subprime mortgages in the lead-up to the crisis. It more than doubled in size during the downturn as a result of its bargain-basement acquisition of Wachovia. And Wells Fargo is one of the few big banks that have been permitted by regulators to ratchet up their dividends to the extent that it's paying out more per share today than it did eight years ago.

So, yes, Wells Fargo's shares may seem expensive compared to the likes of Bank of America, Citigroup, and even JPMorgan Chase. But there's little reason to think that they'll head demonstrably lower anytime soon. And given its industry-leading short interest ratio, you needn't just take my word for this.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.