First Bancorp has had an impressive run over the past six months as its shares have beaten the S&P 500 by 8.4%. The stock now trades at $59.19, marking a 16.1% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy First Bancorp, 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 First Bancorp Not Exciting?
We’re happy investors have made money, but we're swiping left on First Bancorp for now. Here are three reasons we avoid FBNC and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Net interest income and and fee-based revenue are the two pillars supporting bank earnings. The former captures profit from the gap between lending rates and deposit costs, while the latter encompasses charges for banking services, credit products, wealth management, and trading activities.
Unfortunately, First Bancorp’s 8.2% annualized revenue growth over the last five years was mediocre. This was below our standard for the banking sector.
2. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) represents the unit economics of a bank by measuring the profitability of its interest-bearing assets relative to its interest-bearing liabilities. It's a fundamental metric that investors use to assess lending premiums and returns.
Over the past two years, we can see that First Bancorp’s net interest margin averaged a subpar 3.1%, reflecting its high servicing and capital costs.
3. EPS Barely Growing
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.
First Bancorp’s unimpressive 6.5% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
First Bancorp isn’t a terrible business, but it doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 1.5× forward P/B (or $59.19 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 stocks to buy right now. Let us point you toward the most dominant software business in the world.
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