Wells Fargo (NYSE:WFC) has faced a lot of adversity in recent years, and while the stock is cheap today, it doesn't come without some risks. It's definitely "buyer beware" for investors that want to take a chance on what has been a scandal-ridden stock in recent years. Let's take a closer look and see if the bank stock is a buy today.

Troubled times and a troubled stock

Wells Fargo has had its share of issues over the past few years. The bank's scandal involving millions of non-customer-approved accounts broke way back in September 2016, and management is still trying to regain the trust of the public. Since the scandal broke, Wells Fargo has lost more than a thousand brokerage advisors it had employed to help it grow assets, and it has been looking to try and clean up its image through a new marketing campaign

A tall building with the word Bank on it.


However, according to a report earlier this year from The New York Times, employees aren't as convinced that the company has turned a corner. While the bank may claim that things are different and employees aren't under pressure to make sales, the report found that many employees noted that questionable incentives are still there and have simply been altered. The heavy sales pressure employees were under was a big reason for the unauthorized accounts being created in the first place, and that pressure still appears to be in place today. Some employees say they are skeptical as to how much has actually changed with the bank. 

Regulators aren't convinced either, with the Federal Reserve placing a cap on the bank's ability to grow until it can be convinced that the issues have been fixed to their satisfaction and that customers aren't at risk. The restrictions are expected to remain in place until at least the end of this year, and no specific date has been set as to when they may be lifted. 

The scandal has also created instability within the company, with Wells Fargo seeing a lot of turnover at the CEO position. It's still struggling to find a permanent replacement today.

And to make matters worse, falling interest rates this summer and the looming possibility of a recession may make it difficult for Wells Fargo to grow, even if the path is clear. In the company's most recent quarterly results, the bank's net interest margin fell from 2.93% a year ago down to 2.82% currently. And with this latest round of cuts to the Federal Reserve's prime interest rate, those numbers are likely to continue to get smaller.

Numbers still look very strong

Despite all the issues that Wells Fargo has faced in recent years, the stock is down just 11% from where it was two years ago. That's due, in large part, to what's been a strong U.S. economy over that time and rising interest rates that lifted most bank stocks and likely prevented Wells Fargo stock from declining even further. While that drop is still not great, it's a good sign given that things could have been much worse considering the problems that the bank has faced. It's also an indication of how strong the underlying fundamentals of the bank are today. While revenues did decline in 2018, at $84.7 billion, they were only down 1.5% from the prior year and were in line with its numbers from 2015 and 2016. 

At the end of the day, the bank has still produced good results and Wells Fargo has generated more than $5.4 billion in profit in each of the past four quarters. As troubling as the headlines may have been about the company, it hasn't translated into poor financial results just yet, just poor stock performance.  

Is the stock worth the risk?

If the bank is able to show to the Feds that it has cleaned up its act and growth restrictions can be lifted, it could be a great opportunity for the stock to rally. It's been trading at a much lower price-to-earnings ratio than it has in recent years:

WFC PE Ratio (TTM) Chart

WFC PE Ratio (TTM) data by YCharts.

With a very low P/E ratio and the stock at a very reasonable price-to-book multiple of just 1.2, Wells Fargo could be a great buy for value investors today. One of the biggest benefits of the falling stock price: Its dividend yield keeps on climbing, hovering now around 4.2%. Not only has the bank stock continued to pay dividends during this time, but it's also raised its payouts as well and it has the cash flow to maintain those rates.

For investors that are OK with the problems facing the bank today and the possibility that the stock sinks further down until it can resolve them, Wells Fargo could prove to be a great long-term buy. Odds are that it will eventually be able to pull out of all this adversity and come out even stronger. Wells Fargo looks to have been through the worst and still isn't in terribly bad shape today. Once it's able to get back to posting strong results, and it can put all these scandals behind it once and for all, the stock could be due for a big rally. And that could mean significant returns for investors that take a chance on the stock today.

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.