The NatWest (LSE: NWG) share price is cooking. It’s up 300% over 5 years, and 70% over 12 months.

This type of development shouldn’t occur to an enormous FTSE 100 financial institution. And for greater than a dozen years after the monetary disaster, it didn’t.

Piecing the financial institution collectively from fragments of Royal Financial institution of Scotland was the work of greater than a decade. Lest we overlook, the RBS share price started 2007 above 5,000p. By January 2009, it had crashed to 200p, and it bobbed round that degree all the best way to the beginning of 2024, when it turned up the warmth.

Surging returns

Full-year 2023 outcomes, revealed in February final yr, confirmed a 20% bounce in working earnings to £6.18bn, with £3.6bn returned to shareholders by way of dividends and share buybacks. Traders cherished it. The NatWest share price doubled in 2024.

At that time, I did what I often do – determined it had gone too far, too quick, and wasn’t price shopping for. For years, that’s been my response to shares with momentum behind them. However I’ve missed out on loads of development because of this, and now I’m rethinking that technique. Perhaps it’s time I finished worrying and discovered to like momentum.

So what would have occurred if an investor had purchased NatWest initially of 2025?

The shares opened the yr round 402p. As I write, they’re hovering round 510p, up 27% since January, after 2024 working earnings edged up barely to £6.2bn. That might have turned a £10,000 funding into £12,700.

Added dividend bonus

However that’s not all. On 28 April, NatWest paid a remaining dividend of 15.5p per share. That £10k would have purchased round 2,485 shares after expenses, producing a payout of roughly £385. Add that to the capital achieve, and the overall return climbs to £13,085.

That’s a superb outcome, though I ought to say that no person at The Motley Idiot would recommend shopping for a inventory simply to chase a fast achieve. We consider the actual advantages come over the long run – when companies construct earnings throughout the cycle and ship regular dividends that may be reinvested.

So how does NatWest form up on that entrance?

Nonetheless appears cheap

The shares nonetheless look surprisingly good worth, regardless of their sturdy latest run, with a price-to-earnings ratio of 9.8. The price-to-book ratio of 1.08 suggests they’re near honest worth – not screamingly low-cost, however nonetheless respectable.

On 2 Could, NatWest beat expectations with a 36% bounce in Q1 pre-tax earnings to £1.8bn, up from £1.3bn the yr earlier than. That was pushed by a surge in mortgage demand forward of the 31 March finish of the stamp obligation vacation. Nonetheless, the housing market has cooled since, and that’s more likely to present up in Q2.

The financial institution’s taken some impairment expenses already. If rates of interest keep greater for longer, it may take extra.

In Could, NatWest supply £11bn to purchase Santander UK’s retail banking arm. The supply was rejected as too low. We don’t know what NatWest is planning, however I suppose there’s a danger it may overpay, whereas bolting on acquisitions isn’t at all times easy.

After a robust run, it’s not laborious to think about NatWest shares pausing for breath. However with earnings rising and that valuation nonetheless cheap, I nonetheless suppose it’s properly price contemplating with a long-term view.