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 Thursday, July 18, 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.

Customers Bancorp Inc’s Value Grade

Value Grade:

Customers Bancorp, Inc. is a bank holding company, which is engaged in banking activities through its subsidiary, Customers Bank (the Bank). The Bank provides banking products, primarily loans and deposits, to businesses and consumers through its branches, limited production offices and administrative offices in Berks County and Southeastern Pennsylvania, New York, Hamilton, New Jersey, Boston, Massachusetts, and other geographies. The Bank administratively supports loans and other financial products, including equipment finance leases, to customers. It also offers venture banking loan portfolios. The Bank serves specialty businesses nationwide, including its commercial loans to mortgage companies, commercial equipment financing, SBA lending, specialty lending and consumer loans through relationships with fintech companies. The Bank’s specialty lending includes fund finance, real estate specialty finance, technology and venture, healthcare, and financial institutions group.

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.

Customers Bancorp Inc has a Value Score of 78, which is considered to be undervalued.

When you look at Customers Bancorp Inc’s price-to-sales ratio at 1.42 compared to the industry median at 2.06, this company has a lower price relative to revenue compared to its peers. This could make Customers Bancorp Inc’s stock more attractive for value investors.

Customers Bancorp Inc’s price-earnings ratio is 8.70 compared to the industry median at 11.61. This means it has a lower share price relative to earnings compared to its peers. This could make Customers Bancorp Inc more attractive for value investors.

Now, let’s assess Customers Bancorp Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 4.5, when compared to the industry median of 6.3, 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. Customers Bancorp Inc’s shareholder yield is lower than its industry median ratio of 3.14%. 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. Customers Bancorp Inc’s price-to-book ratio is higher than its industry median ratio of 0.97. This could make Customers Bancorp Inc less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Customers 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. Customers Bancorp Inc’s price-to-free-cash-flow ratio is higher than its industry median ratio of 13.39. This could make Customers Bancorp Inc less attractive because the higher P/FCF ratio indicates that Customers 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.

Kearny Financial Corp.’s Value Grade

Value Grade:

Kearny Financial Corp. is a holding company for Kearny Bank (the Bank). The Bank is a New Jersey-chartered savings bank. The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to originate or purchase loans for its portfolio and for sale on the secondary market. Its loan portfolio is comprised of multi-family mortgage loans, non-residential mortgage loans, commercial business loans, construction loans, one-to-four-family residential mortgage loans, home equity loans and other consumer loans. The Company also maintains a portfolio of investment securities, primarily comprised of United States agency mortgage-backed securities, obligations of state and political subdivisions, corporate bonds, asset-backed securities, and collateralized loan obligations. The Bank operates approximately 45 branch offices in New Jersey.

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.

Kearny Financial Corp. has a Value Score of 87, which is considered to be undervalued.

Kearny Financial Corp.’s price-earnings ratio is 29.0 compared to the industry median at 11.6. This means that it has a higher price relative to its earnings compared to its peers. This makes Kearny Financial Corp. less attractive for value investors.

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

You can read more about Kearny 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.

Merchants Bancorp’s Value Grade

Value Grade:

Merchants Bancorp is a diversified bank holding company. The Company conducts its business primarily through its direct and indirect subsidiaries, Merchants Bank of Indiana, Merchants Capital Corp., Merchants Capital Investments, LLC, Merchants Capital Servicing, LLC, Merchants Asset Management, LLC, and Merchants Mortgage, a division of Merchants Bank of Indiana. The Company's segments include Multi-family Mortgage Banking that offers multi-family housing and healthcare facility financing and servicing (through this segment it also serves as a syndicator of low-income housing tax credit and debt funds); Mortgage Warehousing that offers mortgage warehouse financing, commercial loans, and deposit services, and Banking that offers portfolio lending for multi-family and healthcare facility loans, retail and correspondent residential mortgage banking, agricultural lending, Small Business Administration (SBA) lending, and traditional community 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.

Merchants Bancorp has a Value Score of 76, which is considered to be undervalued.

Merchants Bancorp’s price-earnings ratio is 7.6 compared to the industry median at 11.6. This means that it has a lower price relative to its earnings compared to its peers. This makes Merchants Bancorp more attractive for value investors.

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

You can read more about Merchants 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.

RBB Bancorp’s Value Grade

Value Grade:

RBB Bancorp is a bank holding company. The Company's principal business is to serve as the holding company for its wholly owned banking subsidiaries, Royal Business Bank (the Bank) and RBB Asset Management Company (RAM). The Bank provides business-banking products and services predominantly to the Asian-American communities. The products and services include commercial and investor real estate loans, business loans and lines of credit, Small Business Administration (SBA) 7A and 504 loans, mortgage loans, trade finance and a full range of depository accounts, including specialized services, such as remote deposit, E-banking, and mobile banking. It operates 24 branches across two separate regions: the Western region with branches in Los Angeles County, California; Orange County, California; Ventura County, California; Clark County, Nevada; and Honolulu, Hawaii; and the Eastern region with branches in Manhattan, Brooklyn and Queens, New York; Chicago, Illinois and Edison, New Jersey.

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.

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

RBB Bancorp’s price-earnings ratio is 10.6 compared to the industry median at 11.6. This means that it has a lower price relative to its earnings compared to its peers. This makes RBB Bancorp more attractive for value investors.

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

You can read more about RBB 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.

1st Source Corp’s Value Grade

Value Grade:

1st Source Corporation is a bank holding company. The Company, through its subsidiaries, offers a range of financial products and services. Its banking subsidiary, 1st Source Bank (Bank), offers commercial and consumer banking services, trust and wealth advisory services, and insurance to individual and business clients through its 78 banking center locations in 18 counties in Indiana and Michigan and Sarasota County in Florida. The Bank offers specialized financing services for construction equipment, new and pre-owned private and cargo aircraft, and various vehicle types for fleet purposes. It also offers a range of trust, investment, agency, and custodial services for individual, estate and trust, corporate, and not-for-profit clients. Its insurance agency subsidiary, 1st Source Insurance, Inc., offers property and casualty, individual and group health, and life insurance for individuals and businesses. It also owns and manages certain available-for-sale investment 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.

1st Source Corp has a Value Score of 67, which is considered to be undervalued.

1st Source Corp’s price-earnings ratio is 12.6 compared to the industry median at 11.6. This means that it has a higher price relative to its earnings compared to its peers. This makes 1st Source Corp less attractive for value investors.

1st Source Corp’s price-to-book ratio is lower than its peers. This could make 1st Source Corp more attractive for value investors when compared to the industry median at 0.97.

You can read more about 1st Source 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 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.

• Customers Bancorp Inc stock has a Value Grade of B.
• Kearny Financial Corp. stock has a Value Grade of A.
• Merchants Bancorp stock has a Value Grade of B.
• RBB Bancorp stock has a Value Grade of A.
• 1st Source Corp 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 Thursday, July 18
• Which Is a Better Investment, Ameris Bancorp or Customers Bancorp Inc Stock?
• Which Is a Better Investment, Banner Corp or Customers Bancorp Inc Stock?
• 7 Undervalued Banks Stocks for Wednesday, July 17

AAII Disclaimer

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