Byline Bancorp’s 17.2% return over the past six months has outpaced the S&P 500 by 6.3%, and its stock price has climbed to $39.29 per share. 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 Byline 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 Byline Bancorp Not Exciting?
We’re glad investors have benefited from the price increase, but we’re cautious about Byline Bancorp. Here are three reasons why BY doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Net interest income 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.
Regrettably, Byline Bancorp’s revenue grew at a mediocre 9% compounded annual growth rate over the last five years. This was below our standard for the banking sector.
2. Projected Net Interest Income Growth Is Slim
Forecasted net interest income by Wall Street analysts signals a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Byline Bancorp’s net interest income to rise by 2%, a deceleration versus its 7% annualized growth for the past two years. This projection is below its 7% annualized growth rate for the past two years.
3. Recent EPS Growth Below Our Standards
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.
Byline Bancorp’s unimpressive 7.5% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
Byline Bancorp isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 1.3× forward P/B (or $39.29 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re fairly confident there are better investments elsewhere. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of Byline Bancorp
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