Shares of Financial institution of Nova Scotia (TSX:BNS) dived by as a lot as 4.8% in intraday buying and selling on Tuesday after its newest quarterly earnings failed to satisfy analysts’ estimates. Though a restoration later through the session erased a few of these losses, BNS inventory nonetheless ended the day with a 3.4% decline at $77.10 per share.

Regardless of this decline, Scotiabank stays a serious participant within the Canadian monetary sector, holding its place because the fourth-largest financial institution within the nation with a market cap of $95.9 billion. Nonetheless, this dip in BNS inventory has trimmed its year-to-date positive factors to 19.5%, leaving many buyers questioning whether or not it is a shopping for alternative or an indication to re-evaluate their place.

On this article, I’ll break down what went improper in Scotiabank’s newest earnings and aid you resolve whether or not BNS inventory deserves a spot in your portfolio going ahead.

Why BNS inventory fell sharply after the earnings occasion

Clearly, the market’s response to Scotiabank’s fourth-quarter outcomes of its fiscal yr 2024 (led to October) wasn’t all rosy. A big impairment cost of $379 million associated to its funding within the Financial institution of Xi’an raised considerations. This cost, coupled with changes for software program intangible belongings and severance provisions, painted an image of operational headwinds that buyers have been fast to react to.

Additionally, whereas the Canadian lending large’s adjusted quarterly web revenue jumped by 29% YoY (yr over yr) to $1.6 billion, it nonetheless fell in need of Road analysts’ expectations. A current YoY improve in its provisions for credit score losses on impaired loans added to the pessimism. This improve might primarily be attributed to Scotiabank’s larger retail credit score formations in each Canadian and worldwide banking segments, particularly in markets like Mexico and Canada.

These adverse components apparently amplified considerations in regards to the potential impression of financial uncertainties on BNS’s mortgage portfolio, resulting in a selloff in its inventory.

However will these short-term setbacks have an effect on Scotiabank’s long-term fundamentals?

Whereas the market’s preliminary response to Scotiabank’s fourth-quarter outcomes centered on its challenges, it’s essential to step again slightly and see the broader image, which means that these short-term setbacks could not damage its long-term fundamentals. In reality, BNS’s long-term outlook tells a really totally different story.

For instance, Scotiabank’s worldwide banking phase nonetheless continues to be a key pillar of its long-term technique. By leveraging alternatives in rising markets like Mexico, Peru, and Chile, the financial institution continues to point out its means to generate larger margins and income development in comparison with its home operations. In fiscal 2024, BNS noticed an 11% YoY rise in adjusted earnings for this phase, supported by disciplined price management and beneficial international change impacts. This diversification not solely reduces its publicity to any single economic system but additionally gives a cushion towards localized downturns.

Scotiabank’s newest quarterly outcomes additionally highlighted enhancements in key areas, together with an 8% YoY development in adjusted income and powerful efficiency within the international wealth administration phase, the place its belongings beneath administration climbed 17.7% YoY. Equally, the financial institution maintained optimistic working leverage for the yr, reflecting its concentrate on efficient price administration regardless of difficult financial circumstances.

BNS inventory: Is it time to purchase or bail?

Given all these optimistic components, the current dip in BNS inventory might be a possibility for long-term buyers to purchase this superb financial institution inventory at a discount.

With its robust capital place, engaging dividend yield of 5.3%, and diversified income streams throughout high-growth worldwide markets, the financial institution might proceed to submit robust development within the years to come back, which ought to assist its share costs inch up.