Over the past six months, National Bank Holdings’s stock price fell to $38.18. Shareholders have lost 9.1% of their capital, which is disappointing considering the S&P 500 has climbed by 14.3%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in National Bank Holdings, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is National Bank Holdings Not Exciting?
Even though the stock has become cheaper, we’re cautious about National Bank Holdings. Here are three reasons you should be careful with NBHC, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investment banking, and trading fees.
Over the last five years, National Bank Holdings grew its revenue at a tepid 7.5% compounded annual growth rate. This fell short of our benchmark for the banking sector.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for National Bank Holdings, its EPS declined by 2.5% annually over the last five years while its revenue grew by 7.5%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Substandard TBVPS Growth Indicates Limited Asset Expansion
We consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation.
Disappointingly for investors, National Bank Holdings’s TBVPS grew at a sluggish 5.2% annual clip over the last two years.
Final Judgment
National Bank Holdings isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 1× forward P/B (or $38.18 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We’re fairly confident there are better investments elsewhere. We’d suggest looking at the most dominant software business in the world.
Stocks We Would Buy Instead of National Bank Holdings
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