Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 3 stocks made the list for top value stocks in the Banks industry. Those looking for value stocks to add to their portfolio may want to use this list as a starting point for further investment research.

Why Focus on Undervalued Banks Stocks?

Value investors seek to buy stocks at a discount to their intrinsic value. Long-term returns show that such strategies are advantageous. Value stocks, as a group, tend to outperform growth stocks over extended periods of time. Typically, value investors perform financial analysis of numerous metrics, don’t follow the herd and are long-term investors.

AAII’s A+ Investor Value Grade is derived from a stock’s Value Score. The Value Score is the percentile rank of the average of the percentile ranks of the price-to-sales ratio, price-earnings ratio, enterprise-value-to-EBITDA (EV/EBITDA) ratio, shareholder yield, price-to-book-value ratio and price-to-free-cash-flow ratio. The score is variable, meaning it can consider all six ratios or, should any of the six ratios not be valid, the remaining ratios that are valid. To be assigned a Value Score, stocks must have a valid (non-null) ratio and corresponding ranking for at least two of the six valuation ratios.

What Goes Into AAII’s Value Grade?

Stock evaluation requires access to huge amounts of data as well as the knowledge and time to sift through it all, make sense of financial ratios, read income statements and analyze recent stock movement. AAII created A+ Investor, a robust data suite that condenses data research in an actionable and customizable way suitable for investors of all knowledge levels, to help investors with that task.

AAII’s proprietary stock grades come with A+ Investor. These offer intuitive A–F grades for more than just value. It is possible for a stock to appear cheap based on one valuation metric but appear expensive on another. It is also possible for one valuation ratio to be associated with outperforming stocks during certain periods of time but not others. Some stocks may even have null values for certain metrics like the price-earnings ratio or the price-to-book ratio but not others. An example of this would be a company with losses instead of profits or a negative book value because of heavy borrowing. Negative earnings or book value result in non-meaningful ratios that are left blank or null.

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3 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 3 undervalued stocks in the Banks industry for Thursday, January 25, 2024. Let’s take a closer look at their individual scores to see how they measure up against each other and the Banks industry median.

The Value Grade is assigned based on how each stock’s composite valuation compares to all other stocks.

The process for assigning grades starts with each variable for a given stock. The percentile rankings for all valid ratios that a stock has are calculated. So, for instance, a stock could have a price-to-book ranking in the 43rd percentile, a price-earnings ranking in the 67th percentile, a price-to-sales ranking in the 23rd percentile, etc. Then, those rankings are averaged for each stock. (A minimum of two valid variables are required, though all six will be used if available.)

Once the average of the individual variables is calculated, that average is ranked against all stocks. Put another way, each stock’s composite valuation is compared to all other stocks. These ranks are then sorted into quintiles from the cheapest 20% (a grade of A) to the most expensive 20% (a grade of F).

As always, we recommend that you conduct proper due diligence and research before investing in any security. We also suggest that investors utilize numerous grades, not just value, when it comes to deciding whether a company is a good fit for their allocation needs.

Nedbank Group Ltd. (ADR)’s Value Grade

Value Grade:

Nedbank Group Limited is a South Africa-based bank-controlling company that, through its subsidiaries, offers wholesale and retail banking services as well as insurance, asset management and wealth management. The Company's segment includes Nedbank Corporate and Investment Banking, Nedbank Retail and Business Banking, Nedbank Wealth, and Nedbank Africa Regions. The Nedbank Corporate and Investment Banking segment offers transactional, corporate, investment banking and markets solutions. These solutions include lending products, leverage financing, trading, brokering, structuring, hedging and client coverage. The Nedbank Retail and Business Banking serves the financial needs of all individuals and small businesses with a turnover of up to R30m to whom it offers a full spectrum of banking and assurance products and services. The Nedbank Wealth segment provides insurance, asset management and wealth management solutions to clients ranging from entry-level to high-net-worth individuals.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Nedbank Group Ltd. (ADR) has a Value Score of 93, which is considered to be undervalued.

When you look at Nedbank Group Ltd. (ADR)’s price-to-sales ratio at 1.04 compared to the industry median at 2.09, this company has a lower price relative to revenue compared to its peers. This could make Nedbank Group Ltd. (ADR)’s stock more attractive for value investors.

Nedbank Group Ltd. (ADR)’s price-earnings ratio is 7.52 compared to the industry median at 9.72. This means it has a lower share price relative to earnings compared to its peers. This could make Nedbank Group Ltd. (ADR) more attractive for value investors.

Now, let’s assess Nedbank Group Ltd. (ADR)’s EV/EBITDA ratio, also known as enterprise multiple. At 3.4, when compared to the industry median of 5.3, the company may be considered undervalued in relation to its peers. Value investors could use the enterprise multiple to identify stocks that are considered overvalued or undervalued relative to their industry.

Shareholder yield is the sum of a stock’s dividend yield (paid over previous 12 months minus special dividends) and the percentage of net share buybacks over the previous 12 months. Nedbank Group Ltd. (ADR)’s shareholder yield is higher than its industry median ratio of 3.42%. Value investors may look for an attractive shareholder yield because it can be a powerful tool for identifying if the company has a good management team.

As one of the most common value metrics, the price-to-book ratio evaluates a company’s current market price relative to its book value. Nedbank Group Ltd. (ADR)’s price-to-book ratio is higher than its industry median ratio of 1.01. This could make Nedbank Group Ltd. (ADR) less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Nedbank Group Ltd. (ADR)’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Nedbank Group Ltd. (ADR)’s price-to-free-cash-flow ratio is higher than its industry median ratio of 10.42. This could make Nedbank Group Ltd. (ADR) less attractive because the higher P/FCF ratio indicates that Nedbank Group Ltd. (ADR) is undervalued. The P/FCF ratio metric can also be viewed over a long-term time frame to see if the company's cash flow to share price value is generally improving or worsening.

South Plains Financial Inc’s Value Grade

Value Grade:

South Plains Financial Inc. is a bank holding company for City Bank (the Bank). Through City Bank, the Company provides a range of commercial and consumer financial services to small and medium-sized businesses and individuals in its market areas. Its principal business activities include commercial and retail banking, along with investment, trust and mortgage services. The Bank is primarily involved in real estate, commercial, agricultural and consumer lending activities with customers throughout Texas and Eastern New Mexico. Its commercial real estate portfolio includes loans for commercial property that is owned by real estate investors, construction loans to build owner-occupied properties, and loans to developers of commercial real estate investment properties and residential developments. Its loans to consumers include 1-4 family residential loans, auto loans, and other loans for recreational vehicles or other purposes.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

South Plains Financial Inc has a Value Score of 79, which is considered to be undervalued.

South Plains Financial Inc’s price-earnings ratio is 7.5 compared to the industry median at 9.7. This means that it has a lower price relative to its earnings compared to its peers. This makes South Plains Financial Inc more attractive for value investors.

South Plains Financial Inc’s price-to-book ratio is lower than its peers. This could make South Plains Financial Inc more attractive for value investors when compared to the industry median at 1.01.

You can read more about South Plains Financial Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Southern States Bancshares Inc’s Value Grade

Value Grade:

Southern States Bancshares, Inc. is a bank holding company that operates primarily through its wholly owned subsidiary, Southern States Bank (the Bank). The Bank is a full-service community banking institution, which offers an array of deposit, loan and other banking-related products and services to businesses and individuals in its communities. Its franchise is focused on personalized, relationship-driven service combined with local market management and expertise to serve small and medium-sized businesses and individuals. Through its Bank, the Company engages in the business of banking, which consists primarily of accepting deposits from the public and making loans and other investments. Its principal sources of funds for loans and investments at its Bank are demand, time, savings, other deposits and the amortization and prepayments of loans and investments. The Bank operates approximately 13 branches in Alabama and Georgia and two loan production offices in Atlanta.

Stocks with a Value Score from 81 to 100 are considered deep value, those with a score between 61 and 80 are value and so on.

Southern States Bancshares Inc has a Value Score of 72, which is considered to be undervalued.

Southern States Bancshares Inc’s price-earnings ratio is 7.8 compared to the industry median at 9.7. This means that it has a lower price relative to its earnings compared to its peers. This makes Southern States Bancshares Inc more attractive for value investors.

Southern States Bancshares Inc’s price-to-book ratio is lower than its peers. This could make Southern States Bancshares Inc more attractive for value investors when compared to the industry median at 1.01.

You can read more about Southern States Bancshares Inc’s key financial metrics like shareholder yield, price-to-free-cash-flow and EV/EBITDA ratio, or learn more about its Momentum and Growth Grades, by subscribing to A+ Investor.

Other Banks Stock Grades

Value is just one of the five Stock Grades included in our A+ Investor service. AAII members can see the top-graded stocks—those with grades of A or B for value, growth, momentum, earnings estimate revisions and quality—on the A+ Stock Grades Screener.

Also, if you want full access to all of AAII’s premium services, you can subscribe to one convenient bundled plan called AAII Platinum where you can try out A+ Investor, AAII Dividend Investing, the Stock Superstars Report, Growth Investing and VMQ Stocks. With the other premium services, you can dive deep into additional metrics, portfolios, commentary and information about Banks stocks as well as other industrys.

Choosing Which of the 3 Best Banks Stocks Is Right for You

Choosing which value stocks to invest in will ultimately depend on your individual goals and allocation; however, comparing similar value stocks in the same industry can help you analyze which might be better investments for you in the long run. So, let’s take a look at the Value Grade for all of our stocks.

• Nedbank Group Ltd. (ADR) stock has a Value Grade of A.
• South Plains Financial Inc stock has a Value Grade of B.
• Southern States Bancshares Inc stock has a Value Grade of B.

Now that you have a bit more background about each of the 3 undervalued stocks in the Banks industry as well as their overall grades, it’s time for you to conduct additional research to see if these could fit your portfolio needs based on your goals and risk tolerance. AAII can help you figure out both and identify which investments align with what works best for you.

We do so through a program of education that teaches you to invest for yourself and become an effective manager of your own wealth—no more relying on others for your financial independence. You can rely on AAII for timeless articles on financial planning and stock-picking, unbiased research and actionable analysis that makes you a better investor.

A+ Investor adds to that qualitative teaching by giving you a powerful data suite that helps you whittle down investment decisions to find stocks, exchange-traded funds (ETFs) or mutual funds that meet your needs.

Additional Resources About Banks Stocks

Want to learn more about Banks stocks to see if they could be the right investment for you? Check out some additional resources and articles to help you on your financial journey.

• 3 Undervalued Banks Stocks for Thursday, January 25
• 6 Undervalued Banks Stocks for Wednesday, January 24
• What You Need to Know About Alerus Financial Corp's Q3 Earnings
• What You Need to Know About Ameris Bancorp's Q3 Earnings

AAII Disclaimer

We make no representations or warranties that any investor will, or is likely to, achieve profits similar to those shown, because past, hypothetical or simulated performance is not necessarily indicative of future results. Before making an investment decision, you should consider your circumstances and whether the information on our content is applicable to your situation. This information was prepared in good faith and we accept no liability for any errors or omissions. The full disclaimer can be read here.