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 Wednesday, June 28, 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.

FS Bancorp Inc’s Value Grade

Value Grade:

FS Bancorp, Inc. is a holding company for 1st Security Bank of Washington (the Bank). The Bank operates through two segments: commercial and consumer banking and home lending. The commercial and consumer banking segment provides diversified financial products and services to its commercial and consumer customers through Bank branches, automated teller machines (ATM), online banking platforms, mobile banking apps, and telephone banking. These products and services include deposit products; residential, consumer, business and commercial real estate lending portfolios and cash management services. The Company originates consumer loans, commercial and multi-family real estate loans, construction loans for residential and multi-family construction, and commercial business loans. The home lending segment originates from one-to-four-family residential mortgage loans primarily for sale in the secondary markets as well as loans held for investment.

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.

FS Bancorp Inc has a Value Score of 94, which is considered to be undervalued.

When you look at FS Bancorp Inc’s price-to-sales ratio at 1.71 compared to the industry median at 2.13, this company has a lower price relative to revenue compared to its peers. This could make FS Bancorp Inc’s stock more attractive for value investors.

FS Bancorp Inc’s price-earnings ratio is 7.62 compared to the industry median at 7.78. This means it has a lower share price relative to earnings compared to its peers. This could make FS Bancorp Inc more attractive for value investors.

Now, let’s assess FS Bancorp Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 4.3, when compared to the industry median of 5.7, 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. FS Bancorp Inc’s shareholder yield is higher than its industry median ratio of 3.93%. 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. FS Bancorp Inc’s price-to-book ratio is higher than its industry median ratio of 0.87. This could make FS Bancorp Inc less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at FS 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. FS Bancorp Inc’s price-to-free-cash-flow ratio is lower than its industry median ratio of 7.56. This could make FS Bancorp Inc more attractive because the lower P/FCF ratio indicates that FS 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.

Midwestone Financial Group Inc (IOWA)’s Value Grade

Value Grade:

MidWestOne Financial Group, Inc. is a bank holding company. The Company?s principal business is to serve as the holding company for its subsidiary, MidWestOne Bank (the 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. It provides deposit products, including demand and interest checking accounts, savings accounts, money market accounts, and time deposits. The Bank?s products and services, including treasury management, Zelle, online and mobile banking, debit cards, automated teller machines, and safe deposit boxes. The Bank also has a trust department, through which it offers services, including the administration of estates, personal trusts, and conservatorships and the management of real property. It provides a range of commercial and retail lending services to businesses, individuals and government agencies.

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 92, which is considered to be undervalued.

Midwestone Financial Group Inc (IOWA)’s price-earnings ratio is 7.0 compared to the industry median at 7.8. This means that it has a lower price relative to its earnings compared to its peers. This makes Midwestone Financial Group Inc (IOWA) more 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 0.87.

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.

Pathfinder Bancorp Inc (MARYLAND)’s Value Grade

Value Grade:

Pathfinder Bancorp, Inc. is a holding company, which operates through its subsidiary Pathfinder Bank (the Bank). The Bank is primarily engaged in the business of attracting deposits from the public, and investing such deposits, in loans secured by commercial and residential real estate, and commercial business and consumer assets other than real estate. The Company also invests in mortgage-backed securities issued or guaranteed by United States Government sponsored enterprises, collateralized mortgage obligations and similar debt securities issued by both government sponsored entities and private (non-governmental) issuers, and asset-backed securities that are generally issued by private entities. Its loan portfolio includes municipal loans, home equity loans and lines and consumer loans. The Company operates over seven branch offices located in Oswego County, four branch offices in Onondaga County, and one limited purpose office in Oneida County.

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.

Pathfinder Bancorp Inc (MARYLAND) has a Value Score of 88, which is considered to be undervalued.

Pathfinder Bancorp Inc (MARYLAND)’s price-earnings ratio is 8.4 compared to the industry median at 7.8. This means that it has a higher price relative to its earnings compared to its peers. This makes Pathfinder Bancorp Inc (MARYLAND) less attractive for value investors.

Pathfinder Bancorp Inc (MARYLAND)’s price-to-book ratio is higher than its peers. This could make Pathfinder Bancorp Inc (MARYLAND) less attractive for value investors when compared to the industry median at 0.87.

You can read more about Pathfinder Bancorp Inc (MARYLAND)’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.

Westbury Bancorp Inc’s Value Grade

Value Grade:

Westbury Bancorp, Inc. is a bank holding company for Westbury Bank (the Bank). The Bank provides a variety of financial services to individuals and small businesses throughout southeastern Wisconsin. Its primary deposit products include checking, savings, money market, and term certificates. Its primary lending products include consumer, commercial, and residential mortgage loans. Its personal services include online banking, mobile banking, bill pay, pop money, order checks, and e-statements. It provides individual retirement accounts, health savings accounts, and certificates of deposit. The Bank’s business services include business checking, treasury management, and credit cards. Its loan portfolio includes real state, which includes single family, multifamily, commercial real estate non-owner-occupied, commercial real estate owner-occupied and construction and land development. Its consumer and other loans include home equity lines of credit and life insurance cash value 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.

Westbury Bancorp Inc has a Value Score of 84, which is considered to be undervalued.

Westbury Bancorp Inc’s price-earnings ratio is 6.5 compared to the industry median at 7.8. This means that it has a lower price relative to its earnings compared to its peers. This makes Westbury Bancorp Inc more attractive for value investors.

Westbury Bancorp Inc’s price-to-book ratio is higher than its peers. This could make Westbury Bancorp Inc less attractive for value investors when compared to the industry median at 0.87.

You can read more about Westbury 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.

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.

• FS Bancorp Inc stock has a Value Grade of A.
• Midwestone Financial Group Inc (IOWA) stock has a Value Grade of A.
• Pathfinder Bancorp Inc (MARYLAND) stock has a Value Grade of A.
• Westbury Bancorp Inc stock has a Value Grade of A.

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 Wednesday, June 28
• 7 Undervalued Banks Stocks for Tuesday, June 27
• Why Citizens Financial Services Inc’s (CZFS) Stock Is Down 6.84%
• Why Customers Bancorp Inc’s (CUBI) Stock Is Up 5.22%

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.