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 Friday, February 09, 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.

Arrow Financial Corporation’s Value Grade

Value Grade:

Arrow Financial Corporation is a bank holding company. The banking subsidiaries are Glens Falls National Bank and Trust Company (GFNB), and Saratoga National Bank and Trust Company (SNB). The Company provides a broad range of banking and insurance services across northeastern New York, including online and mobile banking, wealth management, money market and deposit accounts, and mortgage, consumer and commercial loans. Its loan portfolio consists of Commercial, Commercial Real Estate, Consumer Loans, and Residential. It offers a variety of loan options to meet the specific needs of its commercial customers including term loans, time notes and lines of credit. It offers commercial real estate loans to finance real estate purchases, refinancings, expansions and improvements to commercial properties. Its consumer loans primarily comprised automobile loans. It finances the purchases of automobiles indirectly through dealer relationships located throughout upstate New York and Vermont.

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.

Arrow Financial Corporation has a Value Score of 65, which is considered to be undervalued.

When you look at Arrow Financial Corporation’s price-to-sales ratio at 2.54 compared to the industry median at 1.91, this company has a higher price relative to revenue compared to its peers. This could make Arrow Financial Corporation’s stock less attractive for value investors.

Arrow Financial Corporation’s price-earnings ratio is 13.74 compared to the industry median at 9.58. This means it has a higher share price relative to earnings compared to its peers. This could make Arrow Financial Corporation less attractive for value investors.

Now, let’s assess Arrow Financial Corporation’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. Arrow Financial Corporation’s shareholder yield is higher than its industry median ratio of 3.61%. 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. Arrow Financial Corporation’s price-to-book ratio is higher than its industry median ratio of 0.97. This could make Arrow Financial Corporation less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Arrow Financial Corporation’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Arrow Financial Corporation’s price-to-free-cash-flow ratio is higher than its industry median ratio of 9.55. This could make Arrow Financial Corporation less attractive because the higher P/FCF ratio indicates that Arrow Financial Corporation 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.

Bankwell Financial Group Inc’s Value Grade

Value Grade:

Bankwell Financial Group, Inc. is a bank holding company. The Company offers a range of financial services through its banking subsidiary, Bankwell Bank (the Bank). The Bank is a Connecticut state non-member bank. The Bank's commercial lending products include owner-occupied commercial real estate loans, commercial real estate investment loans, commercial loans (such as business term loans, equipment financing and lines of credit) to small and mid-sized businesses, and real estate construction and development loans. Its depository products include checking, savings, money market and certificates of deposit. The Bank operates branches in New Canaan, Stamford, Fairfield, Westport, Darien, Norwalk, and Hamden, Connecticut. The Bank provides a range of services to clients in its market, an area encompassing approximately a 100-mile radius around its branch network.

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.

Bankwell Financial Group Inc has a Value Score of 95, which is considered to be undervalued.

Bankwell Financial Group Inc’s price-earnings ratio is 5.3 compared to the industry median at 9.6. This means that it has a lower price relative to its earnings compared to its peers. This makes Bankwell Financial Group Inc more attractive for value investors.

Bankwell Financial Group Inc’s price-to-book ratio is higher than its peers. This could make Bankwell Financial Group Inc less attractive for value investors when compared to the industry median at 0.97.

You can read more about Bankwell Financial Group 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.

Morris State Bancshares Inc’s Value Grade

Value Grade:

Morris State Bancshares, Inc. is a bank holding company for Morris Bank (the Bank). The Bank provides a variety of financial services to individuals and small businesses through its offices in middle Georgia. The Bank offers a full range of commercial and personal loan products. The Bank makes loans to individuals for purposes, such as home mortgage financing, personal vehicles and various consumer purchases and other personal and family needs. The Bank makes commercial loans to businesses for purposes, such as providing equipment and machinery purchases, commercial real estate purchases and working capital. The Bank offers a full range of deposit services that are available from financial institutions, including negotiable order of withdrawal (NOW) accounts, demand, savings, and other time deposits. In addition, the Bank also offers retirement accounts, such as individual retirement accounts. The Company’s wholly owned subsidiaries include the Bank and IMOR Properties LLC.

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.

Morris State Bancshares Inc has a Value Score of 75, which is considered to be undervalued.

Morris State Bancshares Inc’s price-earnings ratio is 8.5 compared to the industry median at 9.6. This means that it has a lower price relative to its earnings compared to its peers. This makes Morris State Bancshares Inc more attractive for value investors.

Morris State Bancshares Inc’s price-to-book ratio is higher than its peers. This could make Morris State Bancshares Inc less attractive for value investors when compared to the industry median at 0.97.

You can read more about Morris State 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.

PCB Bancorp’s Value Grade

Value Grade:

PCB Bancorp is a bank holding company for PCB Bank (the Bank). The Bank offers a range of online banking solutions that includes access to account balances, online transfers, online bill payment and electronic delivery of customer statements, mobile banking solutions, including remote check deposit and mobile bill pay. The Bank offers automated teller machines and banking by telephone, mail, personal appointment, debit cards, direct deposit, cashier?s checks, as well as treasury management, wire transfer and automated clearing house services. The Banks business activities include Lending Activities portfolio that consists of real estate loans, commercial and industrial loans and other consumer loans; Investment securities portfolio includes small business administration loan pools securities, mortgage-backed securities and collateralized mortgage obligations, and Deposits Activities offers a range of deposit accounts, including demand, savings, money market and time deposits.

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.

PCB Bancorp has a Value Score of 95, which is considered to be undervalued.

PCB Bancorp’s price-earnings ratio is 6.9 compared to the industry median at 9.6. This means that it has a lower price relative to its earnings compared to its peers. This makes PCB Bancorp more attractive for value investors.

PCB Bancorp’s price-to-book ratio is higher than its peers. This could make PCB Bancorp less attractive for value investors when compared to the industry median at 0.97.

You can read more about PCB Bancorp’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.

United Bancshares Inc’s Value Grade

Value Grade:

United Bancshares, Inc. is a financial holding company. Its principal subsidiary is The Union Bank Company (Union Bank). Its core business operations are conducted through its subsidiaries, Union Bank and UBC Risk Management, Inc. (UBC Risk Management). Union Bank is a full-service community bank offering a full range of commercial and consumer banking services. Union Bank offers a range of deposit services, including checking accounts, savings and money market accounts, certificates of deposit and individual retirement accounts. Wealth management services are offered by Union Bank through an arrangement with LPL Financial LLC, a registered broker/dealer. Union Bank?s loan products include commercial and residential real estate loans, agricultural loans, commercial and industrial loans, home equity loans, various types of consumer loans and others. UBC Risk Management is a captive insurance subsidiary that insures various liability and property damage policies for the Company.

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.

United Bancshares Inc has a Value Score of 96, which is considered to be undervalued.

United Bancshares Inc’s price-earnings ratio is 6.7 compared to the industry median at 9.6. This means that it has a lower price relative to its earnings compared to its peers. This makes United Bancshares Inc more attractive for value investors.

United Bancshares Inc’s price-to-book ratio is higher than its peers. This could make United Bancshares Inc less attractive for value investors when compared to the industry median at 0.97.

You can read more about United 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 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.

• Arrow Financial Corporation stock has a Value Grade of B.
• Bankwell Financial Group Inc stock has a Value Grade of A.
• Morris State Bancshares Inc stock has a Value Grade of B.
• PCB Bancorp stock has a Value Grade of A.
• United Bancshares Inc stock has a Value Grade of A.

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 Friday, February 09
• 5 Undervalued Banks Stocks for Thursday, February 08
• What You Need to Know About Civista Bancshares Inc's Q4 Earnings
• Why Banco Bbva Argentina SA (ADR)’s (BBAR) Stock Is Down 4.72%

AAII Disclaimer

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