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 23, 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.

Community Trust Bancorp, Inc.’s Value Grade

Value Grade:

Community Trust Bancorp, Inc. (CTBI) is a bank holding company. The Company owns all the capital stock of one commercial bank and one trust company, serving small and mid-sized communities in eastern, northeastern, central, and south-central Kentucky, southern West Virginia, and northeastern Tennessee. The commercial bank is Community Trust Bank, Inc., Pikeville, Kentucky (CTB) and the trust company is Community Trust and Investment Company, Lexington, Kentucky. CTBI is engaged in a range of commercial and personal banking, and trust and wealth management activities, which include accepting time and demand deposits; making secured and unsecured loans to corporations, individuals, and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services. The lending activities of CTB include making commercial, construction, mortgage and personal 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.

Community Trust Bancorp, Inc. has a Value Score of 72, which is considered to be undervalued.

When you look at Community Trust Bancorp, Inc.’s price-to-sales ratio at 2.66 compared to the industry median at 1.92, this company has a higher price relative to revenue compared to its peers. This could make Community Trust Bancorp, Inc.’s stock less attractive for value investors.

Community Trust Bancorp, Inc.’s price-earnings ratio is 9.17 compared to the industry median at 9.88. This means it has a lower share price relative to earnings compared to its peers. This could make Community Trust Bancorp, Inc. more attractive for value investors.

Now, let’s assess Community Trust Bancorp, Inc.’s EV/EBITDA ratio, also known as enterprise multiple. At 7.3, when compared to the industry median of 6.2, the company may be considered overvalued 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. Community Trust Bancorp, Inc.’s shareholder yield is higher 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. Community Trust Bancorp, Inc.’s price-to-book ratio is higher than its industry median ratio of 0.97. This could make Community Trust Bancorp, Inc. less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Community Trust Bancorp, Inc.’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Community Trust Bancorp, Inc.’s price-to-free-cash-flow ratio is higher than its industry median ratio of 9.81. This could make Community Trust Bancorp, Inc. less attractive because the higher P/FCF ratio indicates that Community Trust Bancorp, Inc. 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.

FB Financial Corp’s Value Grade

Value Grade:

FB Financial Corporation is a financial holding company. The Company operates through its wholly owned banking subsidiary, FirstBank (the Bank). The Company operates through two segments: Banking and Mortgage. Its Banking segment provides a full range of deposit and lending products and services to corporate, commercial and consumer customers. Its Mortgage segment originates conforming residential mortgage loans, which include the servicing of residential mortgage loans and the packaging and securitization of loans to governmental agencies. It provides a range of commercial and consumer banking services to clients in select markets primarily in Tennessee, Kentucky, Alabama and North Georgia. It operates approximately 82 full-service bank branches and several other limited-service banking, ATM and mortgage loan production locations serving the Tennessee metropolitan markets. It also provides banking services to over 16 community markets throughout Tennessee, Alabama, and North Georgia.

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.

FB Financial Corp has a Value Score of 64, which is considered to be undervalued.

FB Financial Corp’s price-earnings ratio is 13.9 compared to the industry median at 9.9. This means that it has a higher price relative to its earnings compared to its peers. This makes FB Financial Corp less attractive for value investors.

FB Financial Corp’s price-to-book ratio is lower than its peers. This could make FB Financial Corp more attractive for value investors when compared to the industry median at 0.97.

You can read more about FB 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.

HomeStreet Inc’s Value Grade

Value Grade:

HomeStreet, Inc. is a diversified financial services company. The Company is principally engaged in commercial banking, mortgage banking and consumer/retail banking activities serving customers primarily in the Western United States. It operates through its subsidiaries, which include HomeStreet Bank (the Bank), HomeStreet Statutory Trusts and HomeStreet Capital Corporation. The Bank provides commercial banking products and services to small and medium sized businesses, real estate investors and professional firms and consumer banking products and services to individuals. The Bank offers consumer and commercial banking, mortgage lending and loans for residential construction, commercial real estate financing, and insurance products and services on the West Coast and Hawaii. Its commercial loan portfolio is comprised of the non-owner occupied commercial real estate (CRE), multifamily, construction and land development, owner occupied CRE and commercial business loan classes.

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.

HomeStreet Inc has a Value Score of 97, which is considered to be undervalued.

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

You can read more about HomeStreet 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.

Old Second Bancorp Inc’s Value Grade

Value Grade:

Old Second Bancorp, Inc. is a bank holding company. The Company, through its subsidiary, Old Second National Bank (the Bank), offers financial services. It provides full-service banking business, which includes a range of deposit products, trust and wealth management services, lending services, and deposit services, including demand, negotiable order of withdrawal, money market, savings, time deposit and individual retirement accounts; commercial, industrial, consumer and real estate lending, including installment loans, agricultural loans, lines of credit, lease financing receivables and overdraft checking; safe deposit operations. It also provides additional services, which includes acquisition of United States Treasury notes and bonds, money orders, cashiers? checks and foreign currency, direct deposit, discount brokerage, debit cards, credit cards, and other special services. Its lending activities include making commercial and consumer loans, primarily on a secured basis.

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.

Old Second Bancorp Inc has a Value Score of 87, which is considered to be undervalued.

Old Second Bancorp Inc’s price-earnings ratio is 6.6 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 Old Second Bancorp Inc more attractive for value investors.

Old Second Bancorp Inc’s price-to-book ratio is lower than its peers. This could make Old Second Bancorp Inc more attractive for value investors when compared to the industry median at 0.97.

You can read more about Old Second Bancorp 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.

US Bancorp’s Value Grade

Value Grade:

U.S. Bancorp is a financial service holding company. The Company’s major lines of business are Wealth, Corporate, Commercial and Institutional Banking, Consumer and Business Banking, Payment Services, and Treasury and Corporate Support. The Company provides a range of financial services, including lending and depository services, cash management, capital markets, and trust and investment management services. It also engages in credit card services, merchant and ATM processing, and others. Its banking subsidiary, U.S. Bank National Association (USBNA), is engaged in the banking business, principally in domestic markets. USBNA provides a range of products and services to individuals, businesses, institutional organizations, governmental entities, and other financial institutions. Its non-banking subsidiaries offer investment and insurance products to the Company’s customers principally within its domestic markets, and fund administration services to a range of mutual and other funds.

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.

US Bancorp has a Value Score of 69, which is considered to be undervalued.

US Bancorp’s price-earnings ratio is 12.6 compared to the industry median at 9.9. This means that it has a higher price relative to its earnings compared to its peers. This makes US Bancorp less attractive for value investors.

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

You can read more about US 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.

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.

• Community Trust Bancorp, Inc. stock has a Value Grade of B.
• FB Financial Corp stock has a Value Grade of B.
• HomeStreet Inc stock has a Value Grade of A.
• Old Second Bancorp Inc stock has a Value Grade of A.
• US Bancorp 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 Friday, February 23
• 7 Undervalued Banks Stocks for Thursday, February 22
• Why Banco Bbva Argentina SA (ADR)’s (BBAR) Stock Is Up 5.59%
• Why Banco Macro SA (ADR)’s (BMA) Stock Is Up 4.67%

AAII Disclaimer

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