Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. Furthermore, economic conditions have supported loan growth and fee income, a trend that has enabled the banking industry to return 13.4% over the past six months. At the same time, the S&P 500 was up 11.5%.
Although banks have produced good results, only a handful will thrive over the long term as fintech disruptors are rapidly taking market share from traditional institutions. Taking that into account, here are three bank stocks best left ignored.
Prosperity Bancshares (PB)
Market Cap: $6.76 billion
With a network of banking centers spanning the Lone Star State and beyond, Prosperity Bancshares (NYSE: PB) operates full-service banking locations throughout Texas and Oklahoma, offering a wide range of financial products and services to businesses and consumers.
Why Do We Avoid PB?
- Muted 2% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
- Projected tangible book value per share decline of 1.6% for the next 12 months points to tough credit quality challenges ahead
Prosperity Bancshares is trading at $66.61 per share, or 0.8x forward P/B. Dive into our free research report to see why there are better opportunities than PB.
National Bank Holdings (NBHC)
Market Cap: $1.85 billion
Operating under familiar local brands like Community Banks of Colorado, Bank Midwest, and Bank of Jackson Hole, National Bank Holdings (NYSE: NBHC) operates regional banks across Colorado, Kansas, Missouri, Wyoming, Texas, and other western states, offering commercial, business, and consumer banking services.
Why Are We Wary of NBHC?
- Annual revenue growth of 2.6% over the last two years was below our standards for the banking sector
- Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
- Muted 2.1% annual tangible book value per share growth over the last five years shows its capital generation lagged behind its banking peers
National Bank Holdings’s stock price of $41.22 implies a valuation ratio of 1x forward P/B. If you’re considering NBHC for your portfolio, see our FREE research report to learn more.
First Merchants (FRME)
Market Cap: $2.51 billion
Dating back to 1893 when it first opened its doors in Indiana, First Merchants (NASDAQ: FRME) is a Midwest regional bank providing commercial, consumer, and wealth management services through branches in Indiana, Ohio, Michigan, and Illinois.
Why Are We Hesitant About FRME?
- Muted 3.7% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- 7.5% annual net interest income growth over the last five years was slower than its banking peers
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 4% annually
At $39.77 per share, First Merchants trades at 0.9x forward P/B. Read our free research report to see why you should think twice about including FRME in your portfolio.
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