With an 82% rise in 2024, could NatWest shares continue to rise through 2025?

This year has been excellent for shareholders of NatWest (LSE: NWG), the UK banking giant. NatWest shares have soared 82% so far in 2024.

Additionally, they offer a 4.4% yield at the current price. This means that if an investor had bought the stock earlier in the year before that 82% price increase, their dividend yield would currently be close to 8%.

However, despite a stormy 2024, the stock still looks cheap by some measures.

For example, the price-earnings ratio is less than 8.

Meanwhile, the price-to-book ratio (a common valuation technique for banks) is also well below 1, suggesting the stock could still offer good value.

So what's going on? Could the stock really offer good value to investors even now?

Big year for banks

NatWest has had a great year on the stock market. But it is not alone among its banking peers in that regard.

Two of the other best performing actors in the FTSE 100 this year they have been Barclays (up 70% year-to-date) and the London-based emerging markets-focused bank Chartered Standard (49% more now than at the beginning of the year).

So while NatWest has been the cream of the crop when it comes to share price growth, clearly the City has put a shine on banking shares this year.

That reflects a stronger sense as the year progresses that the global economy is in good shape and could stay that way or improve. That typically means less risk of defaulting on loans, which is good for banks' profits.

I'm not convinced that banks are going to have a great 2025

But while that has been the sentiment, how accurately does it reflect what we've seen in this geopolitically volatile year, let alone what could happen in 2025 and beyond?

Taking NatWest as an example, I'm not convinced their company's performance this year has been stellar.

So far we know how it went in the first nine months. Total revenue fell 3%. Operating expenses increased little by little. Profit from continuing operations was 0.3% lower than in the same period of the previous year.

The company's after-tax profit in the period grew, but that largely reflects lower tax burdens than the prior-year period.

I don't think it's a bad performance. But, from my point of view, it is quite ordinary. It suggests the company is already struggling to find growth drivers in a sluggish economy. If the economy worsens in 2025, defaults could rise and profits fall. I see this as a considerable risk for banks, including NatWest.

The valuation does not seem expensive, for now

Still, although pre-tax profits from continuing operations more or less stagnated in the first nine months, they still amounted to £1.2bn. That is not something that can be disregarded.

With a strong brand, a large customer base and a proven business model, the current valuation of the stock does not seem exaggerated to me, as long as the economy does not worsen noticeably.

But I see the economy as a risk. If it seriously affects earnings, the current valuation could end up looking much less attractive.

So for now, I have no plans to buy NatWest shares for my portfolio.