Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. Still, investors are uneasy as banks face challenges from credit quality concerns and potential regulatory changes. These doubts have certainly contributed to banking stocks’ recent underperformance - over the past six months, the industry’s 9% gain has fallen behind the S&P 500’s 10.9% rise.
While some banks have strong balance sheets and diversified revenue streams that enable them to thrive in any environment, the odds aren’t great for the ones we’re analyzing today. With that said, here are three bank stocks best left ignored.
Texas Capital Bank (TCBI)
Market Cap: $4.27 billion
Founded during the Texas banking renaissance of the 1990s with an entrepreneurial spirit, Texas Capital Bancshares (NASDAQ:TCBI) is a financial services firm that provides banking, wealth management, and investment banking services to businesses and individuals across Texas and beyond.
Why Does TCBI Worry Us?
- Annual net interest income growth of 5.7% over the last five years was below our standards for the banking sector
- Estimated net interest income growth of 2.1% for the next 12 months implies demand will slow from its five-year trend
- ROE of 7.3% reflects management’s challenges in identifying attractive investment opportunities
Texas Capital Bank’s stock price of $98.41 implies a valuation ratio of 1.2x forward P/B. If you’re considering TCBI for your portfolio, see our FREE research report to learn more.
German American Bancorp (GABC)
Market Cap: $1.88 billion
Founded in 1910 during a wave of community banking expansion in the Midwest, German American Bancorp (NASDAQ:GABC) is a financial holding company that provides banking, wealth management, and insurance services across southern Indiana and Kentucky.
Why Are We Cautious About GABC?
- Efficiency ratio is forecasted to remain flat over the next year, suggesting its fixed cost leverage is currently maxed out
- Annual earnings per share growth of 4.9% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- 1.9% annual tangible book value per share growth over the last five years was slower than its banking peers
At $49.90 per share, German American Bancorp trades at 1.5x forward P/B. Read our free research report to see why you should think twice about including GABC in your portfolio.
PennyMac Mortgage Investment Trust (PMT)
Market Cap: $815.3 million
Operating as a real estate investment trust since 2009 to maintain tax advantages, PennyMac Mortgage Investment Trust (NYSE:PMT) is a specialty finance company that invests in mortgage-related assets and operates a correspondent lending business.
Why Do We Steer Clear of PMT?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 14.3% annually over the last five years
- Earnings per share have contracted by 12.1% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Products and services are facing significant credit quality challenges during this cycle as tangible book value per share has declined by 6.3% annually over the last five years
PennyMac Mortgage Investment Trust is trading at $9.36 per share, or 0.6x forward P/B. Dive into our free research report to see why there are better opportunities than PMT.
Stocks We Like More
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