Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 6 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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6 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 6 undervalued stocks in the Banks industry for Tuesday, March 19, 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.

ESSA Bancorp Inc’s Value Grade

Value Grade:

ESSA Bancorp, Inc. is a holding company for ESSA Bank & Trust (the Bank). The Bank is a chartered savings bank. The Bank has two regional offices in Allentown and Devon, and operates 21 community offices throughout the greater Pocono, Lehigh Valley, Scranton/Wilkes-Barre and suburban Philadelphia areas. The Bank’s primary business consists of the taking of deposits and granting of loans to customers generally in Monroe, Northampton, Lehigh, Delaware, Chester, Montgomery, Lackawanna and Luzerne Counties, Pennsylvania. Its personal banking services include personal checking, personal savings, certificates of deposit, money market account, individual retirement accounts (IRAs), online banking, mobile banking, mobile deposit, online bill pay, e-statements, Zelle, Debit Mastercard and others. Its business banking services include business checking, IOLTA checking, government checking, commercial and industrial loans, commercial real estate loans, government financing and credit 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.

ESSA Bancorp Inc has a Value Score of 88, which is considered to be undervalued.

When you look at ESSA Bancorp Inc’s price-to-sales ratio at 1.82 compared to the industry median at 1.89, this company has a lower price relative to revenue compared to its peers. This could make ESSA Bancorp Inc’s stock more attractive for value investors.

ESSA Bancorp Inc’s price-earnings ratio is 9.46 compared to the industry median at 9.62. This means it has a lower share price relative to earnings compared to its peers. This could make ESSA Bancorp Inc more attractive for value investors.

Now, let’s assess ESSA Bancorp Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 5.0, when compared to the industry median of 6.6, 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. ESSA Bancorp Inc’s shareholder yield is higher than its industry median ratio of 3.63%. 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. ESSA Bancorp Inc’s price-to-book ratio is lower than its industry median ratio of 0.91. This could make ESSA Bancorp Inc more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at ESSA 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. ESSA Bancorp Inc’s price-to-free-cash-flow ratio is lower than its industry median ratio of 10.82. This could make ESSA Bancorp Inc more attractive because the lower P/FCF ratio indicates that ESSA 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.

KeyCorp’s Value Grade

Value Grade:

KeyCorp is a bank-based financial services company, which operates through its subsidiary, KeyBank National Association (KeyBank). Through KeyBank and certain other subsidiaries, it provides a range of retail and commercial banking, commercial leasing, investment management, consumer finance, student loan refinancing, commercial mortgage servicing and special servicing, and investment banking products and services to individual, corporate, and institutional clients. It has two business segments: Consumer Bank and Commercial Bank. The Consumer Bank serves individuals and small businesses by offering a variety of deposit and investment products, personal finance and financial wellness services, lending, student loan refinancing, mortgage and home equity, credit card, treasury services, and business advisory services. The Commercial Bank consists of the Commercial and Institutional operating segments. The Commercial operating segment serves the needs of middle market clients.

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.

KeyCorp has a Value Score of 67, which is considered to be undervalued.

KeyCorp’s price-earnings ratio is 16.4 compared to the industry median at 9.6. This means that it has a higher price relative to its earnings compared to its peers. This makes KeyCorp less attractive for value investors.

KeyCorp’s price-to-book ratio is lower than its peers. This could make KeyCorp more attractive for value investors when compared to the industry median at 0.91.

You can read more about KeyCorp’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.

Midwestone Financial Group Inc (IOWA)’s Value Grade

Value Grade:

MidWestOne Financial Group, Inc. (MidWestOne) is a financial holding company. MidWestOne is the parent company of MidWestOne Bank (the Bank), which operates banking offices in Iowa, Minnesota, Wisconsin, Florida, and Colorado. MidWestOne provides electronic delivery of financial services through its Website, MidWestOne.bank. The Bank is focused on delivering relationship-based business and personal banking products and services. The Bank provides commercial loans, real estate loans, agricultural loans, credit card loans, and consumer loans. The Bank also provides deposit products, including demand and interest checking accounts, savings accounts, money market accounts, and time deposits. Complementary to its loan and deposit products, the Bank also provides products and services, including treasury management, Zelle, online and mobile banking, credit and debit cards, ATMs, and safe deposit boxes. The Bank also has a trust department and an investment services department.

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.

Midwestone Financial Group Inc (IOWA) has a Value Score of 82, which is considered to be undervalued.

Midwestone Financial Group Inc (IOWA)’s price-earnings ratio is 16.4 compared to the industry median at 9.6. This means that it has a higher price relative to its earnings compared to its peers. This makes Midwestone Financial Group Inc (IOWA) less attractive for value investors.

Midwestone Financial Group Inc (IOWA)’s price-to-book ratio is higher than its peers. This could make Midwestone Financial Group Inc (IOWA) less attractive for value investors when compared to the industry median at 0.91.

You can read more about Midwestone Financial Group Inc (IOWA)’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.

OceanFirst Financial Corp.’s Value Grade

Value Grade:

OceanFirst Financial Corp. is a holding company for OceanFirst Bank N.A. (the Bank). The Bank is a full-service regional bank delivering financial products and services, which include commercial and consumer financing, deposit services, and wealth management products and services, throughout New Jersey and the metropolitan markets of Philadelphia, New York, Baltimore, and others. The Bank's commercial loans include multi-family and commercial real estate loans, commercial construction loans, and commercial and industrial loans. The Bank’s primary sources of funds are deposits, principal and interest payments on loans and investments, and other borrowings. It also generates non-interest income such as income from bankcard services, trust and asset management products and services, deposit account services, and others. It operates approximately 37 branch offices, and deposit production facilities located throughout New Jersey and metropolitan area of New York City and Philadelphia.

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.

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

OceanFirst Financial Corp.’s price-earnings ratio is 8.7 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 OceanFirst Financial Corp. more attractive for value investors.

OceanFirst Financial Corp.’s price-to-book ratio is higher than its peers. This could make OceanFirst Financial Corp. less attractive for value investors when compared to the industry median at 0.91.

You can read more about OceanFirst 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.

OptimumBank Holdings, Inc.’s Value Grade

Value Grade:

OptimumBank Holdings, Inc. is a bank holding company for OptimumBank (the Bank). The Bank is a state-chartered bank, which offers a variety of community banking services to individual and corporate customers through its two banking offices located in Broward County, Florida. The Bank provides a range of consumer and commercial banking services to individuals and businesses. The Bank?s basic services offered includes demand interest-bearing and noninterest-bearing accounts, money market deposit accounts, negotiable order of withdrawal (NOW) accounts, time deposits, Visa debit and automated teller machine (ATM) cards, cash management, direct deposits, notary services, money orders, night depository, cashier?s checks, domestic collections, and banking by mail. The Bank provides ATM cards and Visa debit cards, as a part of the Star, Presto and Cirrus networks, thereby permitting customers to utilize the convenience of ATMs worldwide.

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.

OptimumBank Holdings, Inc. has a Value Score of 94, which is considered to be undervalued.

OptimumBank Holdings, Inc.’s price-earnings ratio is 4.7 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 OptimumBank Holdings, Inc. more attractive for value investors.

OptimumBank Holdings, Inc.’s price-to-book ratio is higher than its peers. This could make OptimumBank Holdings, Inc. less attractive for value investors when compared to the industry median at 0.91.

You can read more about OptimumBank Holdings, 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.

Bank Ozk’s Value Grade

Value Grade:

Bank OZK (the Bank) is a regional bank that provides a range of financial solutions. The Bank offers a range of products, including checking, savings, loans, mortgages, treasury management, merchant services, trust and estate services, wealth, and credit cards, among others. Its savings products include certificate of deposits, money market accounts, and individual retirement accounts. Its personal lending options include home equity lines of credit, personal lines of credit and auto loans. It offers both a fixed rate mortgage and an adjustable-rate mortgage. Its online banking enables users to manage their accounts, pay bills, transfer funds, view electronic account statements and others. The Bank also provides individual consultation, financial planning, trust, and investment management services. The Bank conducts banking operations with over 240 offices in eight states, including Arkansas, Georgia, Florida, North Carolina, Texas, New York, California, and Mississippi.

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.

Bank Ozk has a Value Score of 91, which is considered to be undervalued.

Bank Ozk’s price-earnings ratio is 7.2 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 Bank Ozk more attractive for value investors.

Bank Ozk’s price-to-book ratio is lower than its peers. This could make Bank Ozk more attractive for value investors when compared to the industry median at 0.91.

You can read more about Bank Ozk’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 6 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.

• ESSA Bancorp Inc stock has a Value Grade of A.
• KeyCorp stock has a Value Grade of B.
• Midwestone Financial Group Inc (IOWA) stock has a Value Grade of A.
• OceanFirst Financial Corp. stock has a Value Grade of A.
• OptimumBank Holdings, Inc. stock has a Value Grade of A.
• Bank Ozk stock has a Value Grade of A.

Now that you have a bit more background about each of the 6 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.

• 6 Undervalued Banks Stocks for Tuesday, March 19
• 6 Undervalued Banks Stocks for Monday, March 18
• Why Banco Macro SA (ADR)’s (BMA) Stock Is Up 4.90%
• Why John Marshall Bancorp Inc’s (JMSB) Stock Is Down 4.05%

AAII Disclaimer

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