Over the last six months, Brookline Bancorp’s shares have sunk to $10.69, producing a disappointing 11.8% loss while the S&P 500 was flat. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Brookline Bancorp, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Brookline Bancorp Not Exciting?
Even with the cheaper entry price, we don't have much confidence in Brookline Bancorp. Here are three reasons why there are better opportunities than BRKL and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.
Brookline Bancorp’s net interest income has grown at a 5.7% annualized rate over the last four years, worse than the broader bank industry. Its growth was driven by an increase in its outstanding loans as its net interest margin, which represents how much a bank earns in relation to its outstanding loan book, was flat throughout that period.
2. Net Interest Margin Dropping
Net interest margin 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, Brookline Bancorp’s net interest margin averaged 3.1%. Its margin also contracted by 47.7 basis points (100 basis points = 1 percentage point) over that period.
This decline was a headwind for its net interest income. While prevailing rates are a major determinant of net interest margin changes over time, the decline could mean Brookline Bancorp either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.
3. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Brookline Bancorp, its EPS declined by 20.9% annually over the last two years while its revenue grew by 1%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Brookline Bancorp isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 0.5× forward P/B (or $10.69 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. Let us point you toward one of our top digital advertising picks.
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