What a year it has been for the shares of Citigroup (C -2.08%)! The past 52 weeks have been good for the S&P 500 index (^GSPC -2.71%), which is up 16% over that span. But it has been amazing for Citigroup's stock, which is up roughly 50%, more than three times the gain of the S&P 500.
Don't rush out to follow the crowd on this one. Take a moment to consider Benjamin Graham's view that paying too much for a great business can turn it into a bad investment.
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Who is Benjamin Graham?
Benjamin Graham has long since left Wall Street, given that his heyday was during the Great Depression. He is often considered the father of fundamental analysis. He has two seminal books on investing, one for professionals and one for more casual investors. You've probably heard of the second one, which is called The Intelligent Investor. If you haven't read it, you probably should.
Graham is still highly relevant today because of his books, but also because one of the most famous investors of modern times is Warren Buffett. Graham was Buffett's mentor and was highly influential in helping to develop Buffett's investment approach. One of the key tenants of Buffett's approach goes right back to Graham: Only buy a stock when it is attractively priced.
And that's a key part of the investment story with Citigroup right now.
What does Citigroup do and should you buy it?
Citigroup is one of the best-known banks in the world. It has a diversified business that includes traditional banking for consumers and businesses, investment banking, and wealth management. The business has been doing fairly well of late, with revenues up 8% year over year in the second quarter. Earnings in the quarter came in at $1.96 per share, up from $1.52 a year earlier. The earnings result was bolstered by a big jump in return on equity, which went from 6.3% in the second quarter of 2024 to 7.7% in the second quarter of 2025.
Wall Street has reacted to Citigroup's success by pushing the shares of the financial giant sharply higher. There's a problem here, though, because sometimes investors get overly excited about a company's business and take it from being cheap to being overpriced. That appears to be the case with Citigroup, which would likely leave both Graham and Buffett warning investors to tread with caution.
But some valuation numbers will help. The swift price increase over the past year has pushed Citigroup's price-to-sales, price-to-earnings, and price-to-book value ratios above their five-year averages. Just as an example, the stock's P/B ratio is around 0.9x today compared to an average of around 0.6x. That suggests it's 50% more expensive than usual. That's not a small difference.
Even looking to the future, Citigroup seems a bit pricey. The company's forward P/E ratio is around 9.8x compared to the five-year average of 8.5x. This measure takes into account analyst projections of future earnings so it usually builds in some growth. But it seems like Wall Street is, perhaps, baking an unusual amount of growth into the stock price right now. All in, looking at the typical valuation metrics, Citigroup looks like it is on the expensive side today.
Citigroup is best left on the wish list
You can argue about whether Citigroup is a good bank or not. But assuming that you believe that the company is good, then Graham would suggest you have to look at whether it is worth buying.
If you use the valuation metrics that most investors use, the answer looks like Wall Street is placing a high valuation on the stock right now following a very large stock price advance. For most investors, Citigroup will probably be a stock to keep watching, not one to run out and buy.
