3 Things to Know Before Buying Bank of America Stock

Bank of America (NYSE: BAC) shares have produced a total return of roughly 110% over the past three years (as of June 16). That kind of strong performance, coupled with the fact that Warren Buffett-led Berkshire Hathaway has a large stake in the business, might incentivize investors to add the financial institution to their portfolios.

Here are three things you need to know about Bank of America before buying.

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1. Bank of America's deposit base is a huge advantage

Bank of America has the leading market share in retail consumer deposits in the U.S. This is a massive advantage because it provides an extremely low-cost source of funding that impacts the company's success. As of March 31, the consumer banking segment had total deposits of of $951 billion.

What's noteworthy is that management says 91% of its checking accounts are customers' primary accounts. That means these deposits are very sticky. Here's where Bank of America benefits from switching costs, as consumers aren't likely to change their main banking service provider once trust and a relationship are established.

In the past decade, the company's consumer banking deposits have increased by 67%. While this isn't exactly eye-popping growth, it's a clear sign that Bank of America has an expanding pool of liquidity that can support lending opportunities and regulatory requirements.

2. Bank of America reported strong Q1 financial results

Bank of America reported net revenue (up 7% year over year) and diluted earnings per share (up 25%) that both came in well ahead of analyst expectations in the first quarter. The strong financial results occurred amid heightened economic uncertainty.

Of note, investment banking fees soared 21%. And net interest income jumped 9% year over year to $15.7 billion. Higher profits boosted the return on tangible common equity to 16%. This is a significant improvement from the reported 14% in the year-ago period.

The business has been successful at keeping expenses under control. The efficiency ratio declined to 61% from 63% in Q1 2025. This metric divides non-interest expenses by net revenue, and a lower number is better.

3. The stock's valuation is reasonable given the bank's growth

Shares of Bank of America are currently trading in record territory. So, investors might wonder if the valuation is too rich to consider buying at these levels.

The stock trades at a price-to-book ratio of 1.5, which isn't expensive given how well the business is performing.

Consensus estimates call for diluted EPS to rise at a compound annual rate of 14.6% between 2025 and 2028. This potentially introduces a robust tailwind for the stock.

In the meantime, the return profile is bolstered by the current dividend yield of nearly 2%.

Bank of America is an advertising partner of Motley Fool Money. Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.