Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 4 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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4 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 4 undervalued stocks in the Banks industry for Wednesday, February 21, 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.

Ames National Corporation’s Value Grade

Value Grade:

Ames National Corporation is a bank holding company. The Bank?s lending activities consist primarily of short-term and medium-term commercial and agricultural real estate loans, residential real estate loans, agricultural and business operating loans and lines of credit, equipment loans, vehicle loans, personal loans and lines of credit, home improvement loans and origination of mortgage loans for sale into the secondary market. The Bank provides a variety of checking, savings and time deposits, cash management services, merchant credit card processing, safe deposit boxes, wire transfers, direct deposit and automated/video teller machine access. The Bank also offer trust services, which include wealth management services. It provides services, such as management assistance, internal auditing services, human resources services and administration, compliance management, marketing assistance and coordination, loan review, financial reporting, and property appraisals.

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.

Ames National Corporation has a Value Score of 65, which is considered to be undervalued.

When you look at Ames National Corporation’s price-to-sales ratio at 2.28 compared to the industry median at 1.92, this company has a higher price relative to revenue compared to its peers. This could make Ames National Corporation’s stock less attractive for value investors.

Ames National Corporation’s price-earnings ratio is 12.39 compared to the industry median at 9.86. This means it has a higher share price relative to earnings compared to its peers. This could make Ames National Corporation less attractive for value investors.

Now, let’s assess Ames National Corporation’s EV/EBITDA ratio, also known as enterprise multiple. At 5.8, 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. Ames National Corporation’s shareholder yield is higher than its industry median ratio of 3.57%. 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. Ames National Corporation’s price-to-book ratio is higher than its industry median ratio of 0.98. This could make Ames National Corporation less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Ames National Corporation’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Ames National Corporation’s price-to-free-cash-flow ratio is higher than its industry median ratio of 9.85. This could make Ames National Corporation less attractive because the higher P/FCF ratio indicates that Ames National 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.

CB Financial Services Inc’s Value Grade

Value Grade:

CB Financial Services, Inc. is the bank holding company. The Company conducts its operations primarily through its wholly owned subsidiary, Community Bank (the Bank). The Bank offers a range of retail and commercial lending and deposit services. The Company's principal lending activity has been the origination in its local market area of residential one- to four-family, commercial real estate, construction, commercial and industrial, and consumer loans. Its residential real estate loans are comprised of loans secured by one- to four-family residential properties. Its investment portfolio includes United States treasuries, United States government agency securities, mortgage-backed securities, investment grade corporate bonds, obligations of states and political subdivisions, short-term instruments, and other securities.

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.

CB Financial Services Inc has a Value Score of 93, which is considered to be undervalued.

CB Financial Services Inc’s price-earnings ratio is 5.0 compared to the industry median at 9.9. This means that it has a lower price relative to its earnings compared to its peers. This makes CB Financial Services Inc more attractive for value investors.

CB Financial Services Inc’s price-to-book ratio is lower than its peers. This could make CB Financial Services Inc fairly attractive for value investors when compared to the industry median at 0.98.

You can read more about CB Financial Services 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.

Community Bancorp’s Value Grade

Value Grade:

Community Bancorp. is a bank holding company for Community National Bank (the Bank). The Bank provides a range of loan and deposit services to the individuals, businesses, nonprofit organizations, and municipalities in its northern and central Vermont markets. Its services include business banking, commercial real estate lending, residential real estate lending, retail credit, municipal and institutional banking, and retail banking. It offers credit products for a variety of general business purposes, including financing for commercial business properties, equipment, inventories, and accounts receivable, as well as letters of credit. It offers business checking and other deposit accounts, cash management services, repurchase agreements, card processing, and remote deposit capture. It provides loan products, including personal loans, automobile loans and boat/recreational vehicle loans. It provides consumer banking services, including checking accounts, and mobile and telephone banking.

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.

Community Bancorp has a Value Score of 86, which is considered to be undervalued.

Community Bancorp’s price-earnings ratio is 6.4 compared to the industry median at 9.9. This means that it has a lower price relative to its earnings compared to its peers. This makes Community Bancorp more attractive for value investors.

Community Bancorp’s price-to-book ratio is lower than its peers. This could make Community Bancorp more attractive for value investors when compared to the industry median at 0.98.

You can read more about Community 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.

Franklin Financial Services Corp’s Value Grade

Value Grade:

Franklin Financial Services Corporation is a bank holding company for Farmers and Merchants Trust Company of Chambersburg (the Bank). The Bank is engaged in general commercial, retail banking and trust services associated with community banks. It offers a range of banking services to businesses, individuals, and governmental entities. It provides a range of services, such as accepting and maintaining checking, savings, and time deposit accounts, providing investment and trust services, making loans and providing safe deposit facilities. It offers various deposit products including demand deposits (noninterest and interest-bearing accounts), savings, money management accounts, and time deposits to retail, commercial, and municipal customers. Its investment and trust services department offers all of the personal and corporate trust services associated with community bank trust departments, including estate planning and administration, and corporate and personal trust fund management.

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.

Franklin Financial Services Corp has a Value Score of 88, which is considered to be undervalued.

Franklin Financial Services Corp’s price-earnings ratio is 8.5 compared to the industry median at 9.9. This means that it has a lower price relative to its earnings compared to its peers. This makes Franklin Financial Services Corp more attractive for value investors.

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

You can read more about Franklin Financial Services 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.

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 4 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.

• Ames National Corporation stock has a Value Grade of B.
• CB Financial Services Inc stock has a Value Grade of A.
• Community Bancorp stock has a Value Grade of A.
• Franklin Financial Services Corp stock has a Value Grade of A.

Now that you have a bit more background about each of the 4 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.

• 4 Undervalued Banks Stocks for Wednesday, February 21
• 5 Undervalued Banks Stocks for Tuesday, February 20
• What You Need to Know About Medallion Financial Corp's Q4 Earnings
• Why Discover Financial Services’s (DFS) Stock Is Up 12.61%

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.