Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 5 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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5 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 5 undervalued stocks in the Banks industry for Wednesday, February 07, 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.

Mercantile Bank Corp’s Value Grade

Value Grade:

Mercantile Bank Corporation is the bank holding company for Mercantile Bank. Its bank is a state banking company. It provides commercial banking services primarily to small- to medium-sized businesses and retail banking services. Its operations are centered around the West and Central portions of Michigan. It makes secured and unsecured commercial, construction, mortgage and consumer loans, and accepts checking, savings and time deposits. It also enables customers to conduct certain loan and deposit transactions by personal computer and through mobile applications. Its insurance product offerings include private passenger automobiles, homeowners, personal inland marine, boat owners, recreational vehicles, dwelling fire, umbrella policies, small businesses, and life insurance products. It offers a range of loans, such as home equity loans, personal loans, overdraft protection, and student loans.

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.

Mercantile Bank Corp has a Value Score of 81, which is considered to be undervalued.

When you look at Mercantile Bank Corp’s price-to-sales ratio at 2.24 compared to the industry median at 1.93, this company has a higher price relative to revenue compared to its peers. This could make Mercantile Bank Corp’s stock less attractive for value investors.

Mercantile Bank Corp’s price-earnings ratio is 7.40 compared to the industry median at 9.68. This means it has a lower share price relative to earnings compared to its peers. This could make Mercantile Bank Corp more attractive for value investors.

Now, let’s assess Mercantile Bank Corp’s EV/EBITDA ratio, also known as enterprise multiple. At 5.5, when compared to the industry median of 6.2, 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. Mercantile Bank Corp’s shareholder yield is lower than its industry median ratio of 3.58%. 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. Mercantile Bank Corp’s price-to-book ratio is higher than its industry median ratio of 0.98. This could make Mercantile Bank Corp less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Mercantile Bank Corp’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Mercantile Bank Corp’s price-to-free-cash-flow ratio is lower than its industry median ratio of 9.73. This could make Mercantile Bank Corp more attractive because the lower P/FCF ratio indicates that Mercantile Bank Corp 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.

National Australia Bank Ltd. (ADR)’s Value Grade

Value Grade:

National Australia Bank Limited (NAB) is a financial services company. The Company's segments include the Business and Private Banking, Personal Banking, Corporate and Institutional Banking, New Zealand Banking and Corporate Functions and Other. Business and Private Banking focuses on small and medium customer segments, including specialized Agriculture, Health, Government, Education and Community services. Personal Banking provides customers with products and services provides home loans or manage personal finances through deposit, credit or personal loan facilities. Corporate and Institutional Banking provides a range of products and services including client coverage, corporate finance, markets, asset servicing, transactional banking and enterprise payments. It consists of Partnership Banking, servicing retail, business, and private customers; Corporate and Institutional Banking, servicing corporate and institutional customers, and includes Markets Sales operations in New Zealand.

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.

National Australia Bank Ltd. (ADR) has a Value Score of 66, which is considered to be undervalued.

National Australia Bank Ltd. (ADR)’s price-earnings ratio is 14.1 compared to the industry median at 9.7. This means that it has a higher price relative to its earnings compared to its peers. This makes National Australia Bank Ltd. (ADR) less attractive for value investors.

National Australia Bank Ltd. (ADR)’s price-to-book ratio is lower than its peers. This could make National Australia Bank Ltd. (ADR) more attractive for value investors when compared to the industry median at 0.98.

You can read more about National Australia Bank Ltd. (ADR)’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.

First Financial Corp’s Value Grade

Value Grade:

First Financial Corporation is a financial holding company. The Company offers a variety of financial services, including commercial, mortgage and consumer lending, lease financing, trust account services, depositor services and insurance services, through its two subsidiaries, which include First Financial Bank, N.A. (the Bank), and FFB Risk Management Co., Inc. The Bank has two investment subsidiaries, Portfolio Management Specialists A (Specialists A) and Portfolio Management Specialists B (Specialists B), which hold and manages certain assets to manage various income streams and provides opportunities for capital creation as needed. The Bank's loan portfolio includes commercial loans, residential loans, and consumer loans. Its deposits include non-interest-bearing demand deposits, interest-bearing demand deposits, savings deposits, time deposits and other time deposits. The consumer portfolio primarily consists of home equity loans and lines, secured loans and unsecured loans.

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.

First Financial Corp has a Value Score of 91, which is considered to be undervalued.

First Financial Corp’s price-earnings ratio is 7.3 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 First Financial Corp more attractive for value investors.

First Financial Corp’s price-to-book ratio is higher than its peers. This could make First Financial Corp less attractive for value investors when compared to the industry median at 0.98.

You can read more about First Financial Corp’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.

Tri City Bankshares Corp’s Value Grade

Value Grade:

Tri City Bankshares Corporation is a bank holding company, which offers a range of financial products and services to external customers, including accepting deposits and originating residential, consumer and commercial loans. It operates through the community banking segment. Its wholly owned subsidiary is Tri City National Bank (the Bank). The Bank's personal banking services include checking accounts, savings and certificate of deposits, health savings accounts, individual retirement accounts, credit cards, and investments. The Bank's business banking services include business loans, business checking, business savings and certificate of deposits, health savings account (HSA) for employers, business credit cards, business services, business fraud prevention, and municipal banking. The Bank's mortgages and loans include mortgages, auto loans, personal loans, and business loans. The Bank's additional services include safe deposit boxes, gift cards, and others.

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.

Tri City Bankshares Corp has a Value Score of 88, which is considered to be undervalued.

Tri City Bankshares Corp’s price-earnings ratio is 8.3 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 Tri City Bankshares Corp more attractive for value investors.

Tri City Bankshares Corp’s price-to-book ratio is higher than its peers. This could make Tri City Bankshares Corp less attractive for value investors when compared to the industry median at 0.98.

You can read more about Tri City Bankshares Corp’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.

WesBanco Inc’s Value Grade

Value Grade:

Wesbanco, Inc. is a bank holding company of Wesbanco Bank, Inc. (the Bank). The Company offers a range of financial services, including retail banking, corporate banking, personal and corporate trust services, brokerage services, mortgage banking and insurance. It offers its services through two segments: Community Banking and Trust and Investment Services. Its Community Banking segment offers services traditionally offered by full-service commercial banks, including commercial demand, individual demand and time deposit accounts, as well as commercial, mortgage and individual installment loans, and certain non-traditional offerings, such as insurance and securities brokerage services. The Trust and Investment Services segment offers trust services, as well as various alternative investment products, including mutual funds. The Bank operates approximately 194 branches and 188 ATM machines in West Virginia, Ohio, western Pennsylvania, Kentucky, southern Indiana and Maryland.

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.

WesBanco Inc has a Value Score of 65, which is considered to be undervalued.

WesBanco Inc’s price-earnings ratio is 11.2 compared to the industry median at 9.7. This means that it has a higher price relative to its earnings compared to its peers. This makes WesBanco Inc less attractive for value investors.

WesBanco Inc’s price-to-book ratio is higher than its peers. This could make WesBanco Inc less attractive for value investors when compared to the industry median at 0.98.

You can read more about WesBanco 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 5 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.

• Mercantile Bank Corp stock has a Value Grade of A.
• National Australia Bank Ltd. (ADR) stock has a Value Grade of B.
• First Financial Corp stock has a Value Grade of A.
• Tri City Bankshares Corp stock has a Value Grade of A.
• WesBanco Inc stock has a Value Grade of B.

Now that you have a bit more background about each of the 5 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.

• 5 Undervalued Banks Stocks for Wednesday, February 07
• 6 Undervalued Banks Stocks for Tuesday, February 06
• Why Citizens & Northern Corporation’s (CZNC) Stock Is Down 5.90%
• Why Dime Community Bancshares Inc’s (DCOM) Stock Is Down 6.82%

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.