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 Tuesday, April 04, 2023. 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.

HSBC Holdings plc (ADR)’s Value Grade

Value Grade:

HSBC Holdings plc (HSBC) is a banking and financial services company. The Company’s segments include Wealth and Personal Banking (WPB), Commercial Banking (CMB) and Global Banking and Markets (GBM). WPB provides a range of retail banking and wealth management services, including insurance and investment products, global asset management services, investment management and private wealth solutions for customers. CMB offers a range of products and services to serve the needs of commercial customers, including small and medium-sized enterprises, mid-market enterprises and corporates. These include credit and lending, international trade and receivables finance, commercial insurance and investments. GBM provides tailored financial solutions to government, corporate and institutional clients and private investors worldwide. The Company operates across various geographical regions, which include Europe, Asia-Pacific, Middle East and North Africa, North America and Latin America.

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.

HSBC Holdings plc (ADR) has a Value Score of 83, which is considered to be undervalued.

When you look at HSBC Holdings plc (ADR)’s price-to-sales ratio at 2.49 compared to the industry median at 2.47, this company has a higher price relative to revenue compared to its peers. This could make HSBC Holdings plc (ADR)’s stock less attractive for value investors.

HSBC Holdings plc (ADR)’s price-earnings ratio is 9.37 compared to the industry median at 8.38. This means it has a higher share price relative to earnings compared to its peers. This could make HSBC Holdings plc (ADR) less attractive for value investors.

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. HSBC Holdings plc (ADR)’s shareholder yield is higher than its industry median ratio of 3.76%. 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. HSBC Holdings plc (ADR)’s price-to-book ratio is lower than its industry median ratio of 0.97. This could make HSBC Holdings plc (ADR) more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at HSBC Holdings plc (ADR)’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. HSBC Holdings plc (ADR)’s price-to-free-cash-flow ratio is lower than its industry median ratio of 7.64. This could make HSBC Holdings plc (ADR) more attractive because the lower P/FCF ratio indicates that HSBC Holdings plc (ADR) 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.

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 87, which is considered to be undervalued.

Preferred Bank’s price-earnings ratio is 6.2 compared to the industry median at 8.4. 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 0.97.

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.

Potomac Bancshares Inc’s Value Grade

Value Grade:

Potomac Bancshares, Inc. is the one bank holding company. The Company operates through its subsidiary, Bank of Charles Town (BCT), also known as The Community's Bank. BCT is a locally owned community bank with nine full-service offices and one loan production office serving the Eastern Panhandle of West Virginia, Washington County, Maryland and Loudoun County, Virginia. The Company’s personal banking services includes personal checking; savings, certificates of deposit (CD) and individual retirement accounts (IRA); Centsables financial education; online and mobile banking; Convenience services; home equity lending; personal loan; consumer credit cards, and account opening service. The Company’s business banking services include industry specialties, commercial loans, small business administration (SBA) lending, business checking solutions, cash management, online and mobile banking, business credit card solutions and payroll protection program (PPP).

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.

Potomac Bancshares Inc has a Value Score of 62, which is considered to be undervalued.

Potomac Bancshares Inc’s price-earnings ratio is 9.5 compared to the industry median at 8.4. This means that it has a higher price relative to its earnings compared to its peers. This makes Potomac Bancshares Inc less attractive for value investors.

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

You can read more about Potomac Bancshares 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.

Simmons First National Corporation’s Value Grade

Value Grade:

Simmons First National Corporation is a financial holding company. The Company, through its lead subsidiary, Simmons Bank (the Bank), provides banking and other financial products and services in markets located in Arkansas, Kansas, Missouri, Oklahoma, Tennessee and Texas. The Bank offers commercial banking products and services to business and other corporate customers. The Bank extends loans for a range of corporate purposes, including financing commercial real estate, construction of properties, commercial and industrial uses, acquisition and equipment financing, and other general corporate needs. The Bank also engages in small business administration and agricultural finance lending, and it offers corporate credit card products, as well as corporate deposit products and treasury management services. The Bank also offers a range of consumer banking products and services, including savings, time, and checking deposit products, automated teller machines services (ATM), 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.

Simmons First National Corporation has a Value Score of 62, which is considered to be undervalued.

Simmons First National Corporation’s price-earnings ratio is 8.4 compared to the industry median at 8.4. This means that it has a higher price relative to its earnings compared to its peers. This makes Simmons First National Corporation fairly attractive for value investors.

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

You can read more about Simmons First National Corporation’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.

• HSBC Holdings plc (ADR) stock has a Value Grade of A.
• Preferred Bank stock has a Value Grade of A.
• Potomac Bancshares Inc stock has a Value Grade of B.
• Simmons First National Corporation stock has a Value Grade of B.

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 Tuesday, April 04
• 5 Undervalued Banks Stocks for Monday, April 03
• Which Is a Better Investment, First Financial Bancorp or First Horizon Corp Stock?
• Which Is a Better Investment, First Financial Bancorp or Intercorp Financial Services Inc Stock?

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.