TowneBank has been treading water for the past six months, holding steady at $34.99. The stock also fell short of the S&P 500’s 15.2% gain during that period.
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Why Is TowneBank Not Exciting?
We’re sitting this one out for now. Here are three reasons we avoid TOWN, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
From lending activities to service fees, most banks build their revenue model around two income sources. Interest rate spreads between loans and deposits create the first stream, with the second coming from charges on everything from basic bank accounts to complex investment banking transactions.
Regrettably, TowneBank’s revenue grew at a sluggish 5.6% compounded annual growth rate over the last five years. This fell short of our benchmark for the banking sector.
2. 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.
TowneBank’s EPS grew at a weak 1.3% compounded annual growth rate over the last five years, lower than its 5.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
TowneBank isn’t a terrible business, but it doesn’t pass our quality test. With its shares trailing the market in recent months, the stock trades at 1.1× forward P/B (or $34.99 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. 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.
Stocks We Like More Than TowneBank
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