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 12.2% over the past six months. At the same time, the S&P 500 was up 3.9%.
Regardless of these results, investors must exercise caution as many banks are sensitive to interest rate fluctuations and economic cycles. With that said, here are three bank stocks best left ignored.
Simmons First National (SFNC)
Market Cap: $3.09 billion
With roots dating back to 1903 and a presence across Arkansas, Kansas, Missouri, Oklahoma, Tennessee, and Texas, Simmons First National (NASDAQ: SFNC) is a regional bank holding company that provides banking and financial services to individuals and businesses.
Why Do We Pass on SFNC?
- Muted 4% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Anticipated 18.2 percentage point rise in its efficiency ratio suggests its expenses will increase as a percentage of revenue
- Earnings per share fell by 4% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
Simmons First National’s stock price of $21.33 implies a valuation ratio of 0.8x forward P/B. Dive into our free research report to see why there are better opportunities than SFNC.
CVB Financial (CVBF)
Market Cap: $2.76 billion
With roots dating back to 1974 and a focus on serving small and medium-sized businesses, CVB Financial (NASDAQ: CVBF) operates Citizens Business Bank, providing banking, lending, and trust services to businesses and individuals across California.
Why Do We Think CVBF Will Underperform?
- Annual sales declines of 2% for the past two years show its products and services struggled to connect with the market during this cycle
- 2% annual net interest income growth over the last five years was slower than its banking peers
- Earnings per share have contracted by 2.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
CVB Financial is trading at $20.36 per share, or 1.1x forward P/B. Check out our free in-depth research report to learn more about why CVBF doesn’t pass our bar.
Cathay General Bancorp (CATY)
Market Cap: $3.72 billion
Founded in 1962 with its first branch in Los Angeles' Chinatown, Cathay General Bancorp (NASDAQ: CATY) operates Cathay Bank, providing commercial banking services to businesses and individuals with a strong presence in Asian-American communities.
Why Does CATY Worry Us?
- Sales trends were unexciting over the last two years as its 3.7% annual growth was below the typical banking company
- Muted 6.5% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Performance over the past two years shows its incremental sales were less profitable, as its 1.1% annual earnings per share growth trailed its revenue gains
At $55.64 per share, Cathay General Bancorp trades at 1.1x forward P/B. To fully understand why you should be careful with CATY, check out our full research report (it’s free).
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