Want to see why Wells Fargo (NYSE:WFC) is considered one of the best-run banks in America, if not the world? Take a look at this chart:
This shows that the growth in Wells Fargo's book value per share has outpaced its big-bank counterparts during the past two decades. It's increased by 656% since 1995 -- and that's after adjusting for inflation. The runner-up is Bank of America, which has seen its book value per share grow by just short of 500% through the same stretch.
This is important because a bank's book value per share weighs heavily on its share price, and thus the return to shareholders. Because the metric filters out the impact of investor sentiment, moreover, it's also one of the best ways to gauge a company's fundamental performance.
Warren Buffett, who coincidentally happens to be Wells Fargo's biggest shareholder by way of Berkshire Hathaway, has long tracked Berkshire's success by looking at the growth in its per-share book value. As he noted in this year's letter to shareholders:
During our tenure, we have consistently compared the yearly performance of the S&P 500 to the change in Berkshire's per-share book value. We've done that because book value has been a crude, but useful, tracking device for the number that really counts: intrinsic business value.
What's particularly impressive in Wells Fargo's case is the 111% growth in its book value per share since the financial crisis. The losses suffered by most banks during the crisis not only ate away at their capital bases, and thus their book values, they also forced many banks to raise capital by issuing new shares of common stock.
You can see the impact of these combined forces on Citigroup's post-crisis book value per share, in particular. Thanks to a $27.7 billion loss in 2008, coupled with the fivefold increase in its outstanding common stock, the measure has dropped by 75% since the first quarter of 2007. For the same reasons, Bank of America's is off by 35% during the past eight years.
In short, if you're looking for one all-encompassing metric that captures Wells Fargo's incredible run during the last few decades, there's no better place to start than the laudable growth in its book value per share.