Live Oak Bancshares trades at $39.42 and has moved in lockstep with the market. Its shares have returned 7.7% over the last six months while the S&P 500 has gained 12.1%.
Is now the time to buy Live Oak Bancshares, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Live Oak Bancshares Not Exciting?
We’re cautious about Live Oak Bancshares. Here are two reasons we avoid LOB, plus one stock we’d rather own.
1. Low Net Interest Margin Hinders Flexibility
Net interest margin (NIM) represents how much a bank earns in relation to its outstanding loans. It’s one of the most important metrics to track because it shows how a bank’s loans are performing and whether it has the ability to command higher premiums for its services.
Over the past two years, we can see that Live Oak Bancshares’s net interest margin averaged a subpar 3.3%. This metric is well below other banks, signaling its loans aren’t very profitable.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Live Oak Bancshares, its EPS declined by 8.6% annually over the last five years while its revenue grew by 11.2%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Live Oak Bancshares isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 1.4× forward P/B (or $39.42 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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