Are NAB shares worth considering in October?

Core Viewpoint - National Australia Bank Ltd's share price is under scrutiny as ASX investors attempt to establish a price target for the company [1][2] Group 1: Market Context - Australia's major banks constitute approximately 30% of the share market by market capitalization [2] - The popularity of ASX bank shares has been notable since the early 1990s, particularly following a recession and high mortgage interest rates exceeding 15% [2] - Banks are generally considered to have implicit protection against total financial collapse due to the political implications of a bank failure [2] Group 2: Valuation Methods - The Price-to-Earnings (PE) ratio is a common method for valuing bank shares, comparing the share price to earnings per share [3] - Three approaches to using the PE ratio include intuitive buying/selling based on PE levels, comparing PE ratios with peers, and calculating a valuation based on expected earnings and a chosen PE multiple [4] - National Australia Bank's current share price is $43.21, with an earnings per share of $2.26, resulting in a PE ratio of 19.1x, slightly below the banking sector average of 20x [5] Group 3: Dividend Discount Model (DDM) - The Dividend Discount Model (DDM) is a more sophisticated method for valuing banks, relying on recent or forecasted dividends and a risk rate [6][7] - The formula for DDM valuation is Share price = full-year dividend / (risk rate – dividend growth rate) [8] - Using last year's dividend of $1.69 and assuming consistent growth, the DDM valuation yields $35.74, while an adjusted dividend of $1.71 results in a valuation of $36.16 [10] Group 4: Gross Dividend Valuation - Considering fully franked dividends, the valuation based on a forecast gross dividend payment of $2.44 results in a share price valuation of $51.66 [11] Group 5: Growth and Risk Analysis - Various growth and risk rate scenarios yield a range of valuations, with a 6% risk rate and 2% growth rate resulting in a valuation of $42.75, while a 10% risk rate and 4% growth rate yield $28.50 [12] Group 6: Additional Considerations - Further analysis should include questions about net interest margins, regulatory challenges, and the management team's effectiveness [13]