Banks use their capital and expertise to help businesses grow while offering consumers essential financial products like mortgages and credit cards. But worries about an economic slowdown and potential credit deterioration have kept sentiment in check, and over the past six months, the banking industry’s 8.2% return has trailed the S&P 500 by 10.2 percentage points.
Investors should tread carefully as many of these banks are also cyclical, and any misstep can have you catching a falling knife. Keeping that in mind, here are three bank stocks we’re steering clear of.
Hilltop Holdings (HTH)
Market Cap: $2.19 billion
Transformed from a residential communities business to a financial services powerhouse in 2007, Hilltop Holdings (NYSE: HTH) is a Texas-based financial holding company that provides banking, broker-dealer, and mortgage origination services.
Why Are We Out on HTH?
- Annual net interest income growth of 1.4% over the last five years was below our standards for the banking sector
- Projected 30.2 percentage point efficiency ratio increase over the next year signals it will struggle to adjust its fixed costs as sales fall
- Sales were less profitable over the last five years as its earnings per share fell by 13.8% annually, worse than its revenue declines
At $38.18 per share, Hilltop Holdings trades at 1x forward P/B. Check out our free in-depth research report to learn more about why HTH doesn’t pass our bar.
Flagstar Financial (FLG)
Market Cap: $5.11 billion
Tracing its roots back to 1859 and rebranded from New York Community Bancorp in 2024, Flagstar Financial (NYSE: FLG) is a bank holding company that offers commercial and consumer banking services, with specialties in multi-family lending, mortgage originations, and warehouse lending.
Why Do We Steer Clear of FLG?
- Net interest income trends were unexciting over the last five years as its 7.5% annual growth was below the typical banking firm
- Weak unit economics are reflected in its net interest margin of 2%, one of the worst among bank companies
- Earnings per share fell by 52.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
Flagstar Financial’s stock price of $12.46 implies a valuation ratio of 0.7x forward P/B. Dive into our free research report to see why there are better opportunities than FLG.
Republic Bancorp (RBCAA)
Market Cap: $1.83 billion
With roots dating back to 1974 and operating across multiple states including Kentucky, Indiana, Florida, Ohio, and Tennessee, Republic Bancorp (NASDAQGS:RBCA.A) is a Kentucky-based financial holding company that operates a bank offering traditional banking, mortgage services, and specialized financial products.
Why Does RBCAA Worry Us?
- Muted 5.9% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Projected net interest income growth of 4.9% for the next 12 months suggests sluggish demand
- Estimated tangible book value per share growth of 7.8% for the next 12 months implies profitability will slow from its two-year trend
Republic Bancorp is trading at $93.33 per share, or 1.5x forward P/B. To fully understand why you should be careful with RBCAA, check out our full research report (it’s free).
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