For a moment, it looked like better times were on the way for Wells Fargo & Co (NYSE:WFC). Between late November and late January, Wells Fargo stock gained almost 25%. A series of regulatory missteps seemed behind the company, and WFC stock looked set to finally join in the long-running rally in big bank stocks.

Then the Federal Reserve announced sanctions on Wells Fargo and the rally came to a quick end. WFC stock gave back those gains quicker than it had achieved them. WFC promptly threatened a 52-week low this month before a recent modest rally.

There is a case to buy the dip here. Big bank stocks as a whole should benefit from rising interest rates this year. As Lawrence Meyers wrote recently, the bad news looks close to baked in. Wells Fargo trades at an attractive 1.4 price-to-book ratio and trades at barely 10 times 2019 consensus earnings-per-share estimates. And at a certain point, Wells Fargo’s regulatory actions — and fines — will be in the rearview mirror.

But I don’t think the case is strong enough at these levels. WFC stock is cheap — but it’s not as if its peers are expensive. The Fed sanctions, including a cap on growth, won’t end until Wells Fargo has convinced regulators it has changed its ways. That may take some time. And there’s the not-so-small matter of whether Wells Fargo has hurt its reputation with key consumer and government customers. WFC has underperformed its peers badly for some time now — and I’m not sure that underperformance is coming to an end just yet.

WFC Stock Is Cheap — Or Is It?

At 21% below 52-week highs, Wells Fargo stock might appear to be on sale. And a 1.4 P/B ratio and a forward P/E ratio of around 10 both seem like attractive multiples.

But the banking sector is a cyclical industry — and in year nine of an economic expansion, there’s a clear risk that the cycle will turn at some point. That risk is priced into peers, whose own valuations make WFC stock look far less attractive in comparison.

Bank of America Corp (NYSE:BAC), which I continue to recommend, trades at 1.3x book and 10.4x 2019 EPS. JPMorgan Chase & Co. (NYSE:JPM), another strong pick, is at 1.7x book and 11x earnings. Goldman Sachs Group Inc (NYSE:GS) is even cheaper — on both metrics — than WFC.

Valuation alone doesn’t necessarily make WFC the worst — or best — pick. But the argument that WFC is somehow too cheap at the moment is belied by the fact that other big banks are trading at very similar levels.

The Regulatory Concerns for Wells Fargo Stock

The recent news coming from Wells Fargo is proof of the old adage that “there’s never just one cockroach”. Warren Buffett, whose Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) is a major WFC shareholder, made exactly that point back in August.

The “fake account” scandal has been followed by more regulatory action — and what looks like more serious violations. While opening fake accounts garnered negative headlines, the impact on customers was relatively muted.

That wasn’t the case with the auto loan and mortgage issues that led to a $1 billion fine from the Consumer Financial Protection Bureau. Or in the reported violations surrounding 401(k) plans. Or the bank’s pushing of unnecessary and duplicative add-ons in the auto loan portfolio.

Wells Fargo isn’t the only bank to face regulatory action. But while its peers are putting housing bubble-era concerns to rest, Wells Fargo has provided a steady drumbeat of fresh concerns for investors. They have had a clear impact on Wells Fargo stock.

Over the past three years, WFC has declined 5.5%. BAC stock is up 89% and JPM has risen 72%. Even Citigroup Inc (NYSE:C), a relative laggard, has gained 28%. The continuing execution errors have punished Wells Fargo shareholders.

Is Wells Fargo’s Reputation at Risk?

And it’s tough to be confident that the errors in the past are setting up an opportunity going forward because:

A) WFC stock isn’t that cheap.
B) It’s too soon to argue the errors are truly in the past.

The Fed sanctions aren’t going anywhere as long as Wells Fargo is facing investigations and sanctions from other agencies. Investors can have little confidence that the worst truly is behind the company.

There’s also the issue of whether Wells Fargo is losing business — and will continue to lose business. A number of cities and states have paused or ended their relationships with the banks. Consumers haven’t departed the bank despite the hit to its reputation, but as more bad news comes out, that may change.

But even if it doesn’t, I don’t see much of a compelling case for Wells Fargo at these levels. I’d much rather own JPM or BAC. Both those banks have similar tailwinds and strong franchises of their own. And shareholders of those banks don’t have to wake up every morning wondering what fresh scandal has been uncovered.

As of this writing, Vince Martin has no positions in any securities mentioned.