Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 7 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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7 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 7 undervalued stocks in the Banks industry for Wednesday, August 14, 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.

AMB Financial Corp.’s Value Grade

Value Grade:

AMB Financial Corp. is a bank holding company for American Community Bank of Indiana (the Bank). The Company’s primary market area consists of the northwest portion of Lake County, Indiana. The Bank is a community-oriented institution whose business consists primarily of accepting deposits from customers within its market area and investing those funds in mortgage loans secured by residential and non-residential real estate as well as non-real estate commercial and consumer loans. The Company also invests in mortgage-backed and other investment securities. Its personal banking services include checking accounts, savings accounts, money market, digital banking, credit cards, investments, and deposit rates. Its business banking services include business checking, business lending, merchant services, remote deposits, and receivables financing. It also offers personal online banking, business online banking and business mobile apps.

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.

AMB Financial Corp. has a Value Score of 95, which is considered to be undervalued.

When you look at AMB Financial Corp.’s price-to-sales ratio at 0.91 compared to the industry median at 1.92, this company has a lower price relative to revenue compared to its peers. This could make AMB Financial Corp.’s stock more attractive for value investors.

AMB Financial Corp.’s price-earnings ratio is 8.64 compared to the industry median at 11.29. This means it has a lower share price relative to earnings compared to its peers. This could make AMB Financial Corp. more attractive for value investors.

Now, let’s assess AMB Financial Corp.’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. AMB Financial Corp.’s shareholder yield is lower than its industry median ratio of 3.29%. 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. AMB Financial Corp.’s price-to-book ratio is lower than its industry median ratio of 0.95. This could make AMB Financial Corp. more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at AMB Financial Corp.’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. AMB Financial Corp.’s price-to-free-cash-flow ratio is lower than its industry median ratio of 13.10. This could make AMB Financial Corp. more attractive because the lower P/FCF ratio indicates that AMB Financial Corp. 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.

Discover Financial Services’s Value Grade

Value Grade:

Discover Financial Services is a digital banking and payment services company. The Company is a bank holding company, as well as a financial holding company. The Company operates through two segments: Digital Banking and Payment Services. Its Digital Banking segment includes consumer banking and lending products, specifically Discover-branded credit cards issued to individuals on the Discover Network and other consumer banking products and services, including private student loans, personal loans, home loans and deposit products. Its Payment Services segment includes PULSE, Diners Club, and its Network Partners business, which provides payment transaction processing and settlement services on the Discover Global Network. Its processing services covers four functional areas such as card personalization, print/mail, remittance processing and item processing. Its private student loans are primarily available to students attending eligible non-profit undergraduate and graduate schools.

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.

Discover Financial Services has a Value Score of 76, which is considered to be undervalued.

Discover Financial Services’s price-earnings ratio is 11.2 compared to the industry median at 11.3. This means that it has a lower price relative to its earnings compared to its peers. This makes Discover Financial Services more attractive for value investors.

Discover Financial Services’s price-to-book ratio is lower than its peers. This could make Discover Financial Services more attractive for value investors when compared to the industry median at 0.95.

You can read more about Discover Financial Services’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.

Hope Bancorp Inc’s Value Grade

Value Grade:

Hope Bancorp, Inc. is the holding company of Bank of Hope (the Bank). The Company's loan portfolio segments include commercial real estate (CRE) loans, commercial and industrial (C&I;) loans, residential mortgage loans, and consumer and other loans. CRE loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust and are collateralized by residential or commercial properties. C&I; loans are loans provided to businesses for various purposes such as for working capital, purchasing inventory, debt refinancing, business acquisitions, international trade finance activities, and other business related financing needs, and also include syndicated loans. Residential mortgage loans are extended for personal, family, or household use and are secured by a mortgage or deed of trust. Consumer and other loans consist of home equity, credit cards, and other personal loans. It operates over 54 full-service branches in the United States.

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.

Hope Bancorp Inc has a Value Score of 91, which is considered to be undervalued.

Hope Bancorp Inc’s price-earnings ratio is 13.2 compared to the industry median at 11.3. This means that it has a higher price relative to its earnings compared to its peers. This makes Hope Bancorp Inc less attractive for value investors.

Hope Bancorp Inc’s price-to-book ratio is higher than its peers. This could make Hope Bancorp Inc less attractive for value investors when compared to the industry median at 0.95.

You can read more about Hope 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.

First Internet Bancorp’s Value Grade

Value Grade:

First Internet Bancorp is a financial holding company, which is engaged in conducting its primary business activities through its wholly owned subsidiary, First Internet Bank of Indiana (the Bank), an Indiana chartered bank. The Bank offers a range of commercial, small business, consumer and municipal banking products and services. The Bank conducts its consumer and small business deposit operations primarily through digital channels on a nationwide basis and have no traditional branch offices. Its consumer lending products are primarily originated on a nationwide basis through relationships with dealerships and financing partners. The Bank's commercial banking products and services are delivered through a relationship banking model and include commercial and industrial (C&I;) banking, construction and investor commercial real estate, single tenant lease financing, public finance, healthcare finance, small business lending, commercial deposits, and treasury 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.

First Internet Bancorp has a Value Score of 85, which is considered to be undervalued.

First Internet Bancorp’s price-earnings ratio is 15.5 compared to the industry median at 11.3. This means that it has a higher price relative to its earnings compared to its peers. This makes First Internet Bancorp less attractive for value investors.

First Internet Bancorp’s price-to-book ratio is higher than its peers. This could make First Internet Bancorp less attractive for value investors when compared to the industry median at 0.95.

You can read more about First Internet 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.

Preferred Bank’s Value Grade

Value Grade:

Preferred Bank is an independent commercial bank focusing primarily on the California market. The Bank provides a range of financial services. The Bank offers a range of deposit and loan products and services to both commercial and consumer customers. The Bank provides personalized deposit services as well as real estate finance, commercial loans and trade finance to small and mid-sized businesses, entrepreneurs, real estate developers, professionals, and high net worth individuals. The Bank conducts its banking business from its main office in Los Angeles, California, and through 11 full-service branch banking offices in California (Alhambra, Century City, City of Industry, Torrance, Arcadia, Irvine, Diamond Bar, Pico Rivera, Tarzana, and San Francisco) and one branch in Flushing, New York. In addition, the Bank operates a loan production office in the Houston, Texas suburb of Sugar Land. Its business activities come from the mainstream markets of Southern and Northern California.

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.

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

Preferred Bank’s price-earnings ratio is 7.5 compared to the industry median at 11.3. This means that it has a lower price relative to its earnings compared to its peers. This makes Preferred Bank more attractive for value investors.

Preferred Bank’s price-to-book ratio is lower than its peers. This could make Preferred Bank more attractive for value investors when compared to the industry median at 0.95.

You can read more about Preferred Bank’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.

River Financial Corp’s Value Grade

Value Grade:

River Financial Corporation is a bank holding company. The Company operates one subsidiary bank, River Bank & Trust. The Company is engaged in the business of banking, which consists of accepting deposits from the public and making loans and other investments. It offers a range of lending services, including real estate, consumer, and commercial loans, to individuals, small businesses, and other organizations located in or conducting a substantial portion of their business in its market areas. Its consumer lending includes installment lending to individuals in its market areas and generally consists of loans to purchase automobiles and other consumer durable goods. It offers electronic banking services to its customers, including commercial and retail online banking, automated bill payment, mobile banking, and remote deposit capture for certain customers. The Company operates approximately 23 full-service banking offices. It also has one loan production office in Florence, Alabama.

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.

River Financial Corp has a Value Score of 69, which is considered to be undervalued.

River Financial Corp’s price-earnings ratio is 8.0 compared to the industry median at 11.3. This means that it has a lower price relative to its earnings compared to its peers. This makes River Financial Corp more attractive for value investors.

River Financial Corp’s price-to-book ratio is lower than its peers. This could make River Financial Corp more attractive for value investors when compared to the industry median at 0.95.

You can read more about River 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.

Western Alliance Bancorporation’s Value Grade

Value Grade:

Western Alliance Bancorporation is a bank holding company. The Company provides a full spectrum of customized loan, deposit, and treasury management capabilities, including funds transfer and other digital payment offerings through its wholly owned banking subsidiary, Western Alliance Bank (WAB). WAB operates through five full-service banking divisions: Alliance Bank of Arizona, Bank of Nevada, Bridge Bank, First Independent Bank, and Torrey Pines Bank. The Company also provides a range of specialized financial services to business customers across the country, including mortgage banking services through AmeriHome and treasury management services to the homeowner's association sector, and digital payment services for the class action legal industry. It has two non-bank subsidiaries, such as CS Insurance Company (CSI) and Western Alliance Trust Company, N.A. (WATC). CSI is a captive insurance company. WATC provides corporate trust services and levered loan administration solutions.

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.

Western Alliance Bancorporation has a Value Score of 72, which is considered to be undervalued.

Western Alliance Bancorporation’s price-earnings ratio is 10.9 compared to the industry median at 11.3. This means that it has a lower price relative to its earnings compared to its peers. This makes Western Alliance Bancorporation more attractive for value investors.

Western Alliance Bancorporation’s price-to-book ratio is lower than its peers. This could make Western Alliance Bancorporation more attractive for value investors when compared to the industry median at 0.95.

You can read more about Western Alliance Bancorporation’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 7 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.

• AMB Financial Corp. stock has a Value Grade of A.
• Discover Financial Services stock has a Value Grade of B.
• Hope Bancorp Inc stock has a Value Grade of A.
• First Internet Bancorp stock has a Value Grade of A.
• Preferred Bank stock has a Value Grade of A.
• River Financial Corp stock has a Value Grade of B.
• Western Alliance Bancorporation stock has a Value Grade of B.

Now that you have a bit more background about each of the 7 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.

• 7 Undervalued Banks Stocks for Wednesday, August 14
• Which Is a Better Investment, Heartland Financial USA Inc or United Community Banks Inc Stock?
• Which Is a Better Investment, Pacific Premier Bancorp, Inc. or United Community Banks Inc Stock?
• 3 Undervalued Banks Stocks for Tuesday, August 13

AAII Disclaimer

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