Where Will Bank of America Stock Be in 5 Years?

In the past five years, the S&P 500 index put up a total return of 78% (as of April 9). Despite being one of the largest financial institutions in the world, Bank of America (NYSE: BAC) came up well short of the benchmark. The bank's total return was just 48%.

Where will Bank of America shares be in five years?

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The company's staying power is a compelling trait

For investors looking to put money to work over the long term, it's important to stick to high-quality businesses. Bank of America easily falls into this category. Since it's a top Berkshire Hathaway holding, it certainly has a stamp of approval from the Oracle of Omaha.

Bank of America has legitimate staying power, which means that it faces minimal threat (or perhaps no threat at all) of being disrupted. That's because its products and services, which span a broad range of activities from consumer and corporate banking to wealth management and capital markets, are essential to help our economy function smoothly.

Like its peers, Bank of America's financial performance is influenced by changing interest rates. Lower or higher rates have puts and takes. The former can boost lending activity, but at lower yields. The latter can deter demand from borrowers, but at higher yields. Rates also have a direct impact on what the company pays depositors or its ability to raise capital from other sources.

No one has any idea what the Federal Reserve will do this year or over the next five years. That doesn't matter. Bank of America has handled changing macro regimes in the past. There's no reason to believe it can't successfully navigate things going forward, even if there's a recession.

Think about the current valuation and earnings growth

To figure out where this financial stock will be in five years, investors should consider two critical factors. The first one is the current valuation. Bank of America shares are trading down 6% in the past three months, so there is a dip opportunity to take advantage of. The stock can be bought at a price-to-earnings ratio of 14.2.

Profits are another variable that investors must consider. Between 2025 and 2028, consensus analyst estimates call for Bank of America's diluted earnings per share (EPS) to grow at a compound annual rate of 13.2%. This would be a solid pace that might continue in the years after the forecast period.

If we assume that the stock's valuation multiple is the same in April 2031 as it is today, then investors can register returns that resemble EPS growth. Based on the current price of $52.71, this puts the shares at around $98 in five years.

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.