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 Friday, August 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.

First Hawaiian Inc’s Value Grade

Value Grade:

First Hawaiian, Inc. (FHI) is a bank holding company engaged in providing banking services to consumer and commercial customers, including deposit products, lending services and wealth management and trust services. FHI segments include Retail Banking, Commercial Banking and Treasury and Other. FHI offers deposit products, including checking and savings accounts and other types of deposit accounts. FHI also offers comprehensive commercial banking services to middle market and large Hawaii-based businesses. FHI provides commercial and industrial lending, including auto dealer flooring, commercial real estate and construction lending. FHI also offers comprehensive consumer lending services focused on residential real-estate lending, indirect auto financing and other consumer loans to individuals and small businesses through our branch, online and mobile distribution channels. FHI's wealth management business provides private banking and investment management services.

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 Hawaiian Inc has a Value Score of 71, which is considered to be undervalued.

When you look at First Hawaiian Inc’s price-to-sales ratio at 3.16 compared to the industry median at 2.21, this company has a higher price relative to revenue compared to its peers. This could make First Hawaiian Inc’s stock less attractive for value investors.

First Hawaiian Inc’s price-earnings ratio is 9.34 compared to the industry median at 8.73. This means it has a higher share price relative to earnings compared to its peers. This could make First Hawaiian Inc less attractive for value investors.

Now, let’s assess First Hawaiian Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 8.9, when compared to the industry median of 6.1, the company may be considered overvalued 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. First Hawaiian Inc’s shareholder yield is higher than its industry median ratio of 3.80%. 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. First Hawaiian Inc’s price-to-book ratio is higher than its industry median ratio of 0.97. This could make First Hawaiian Inc less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at First Hawaiian Inc’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. First Hawaiian Inc’s price-to-free-cash-flow ratio is higher than its industry median ratio of 8.41. This could make First Hawaiian Inc less attractive because the higher P/FCF ratio indicates that First Hawaiian 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.

First Merchants Corp’s Value Grade

Value Grade:

First Merchants Corporation is a financial holding company. The Company operates banking operations through its wholly owned subsidiary, First Merchants Bank (the Bank). The Bank also operates First Merchants Private Wealth Advisors, which is a division of the Bank. The Bank includes approximately 122 banking locations in Indiana, Ohio, Michigan and Illinois. In addition to its branch network, the Company offers comprehensive electronic and mobile delivery channels to its customers. The Company operates through a community banking segment. Through the Bank, the Company offers a range of financial services, including accepting time, savings and demand deposits; making consumer, commercial, agri-business and real estate mortgage loans; providing personal and corporate trust services; offering full-service brokerage and private wealth management, and providing letters of credit, repurchase agreements, and other corporate services.

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 Merchants Corp has a Value Score of 66, which is considered to be undervalued.

First Merchants Corp’s price-earnings ratio is 7.5 compared to the industry median at 8.7. This means that it has a lower price relative to its earnings compared to its peers. This makes First Merchants Corp more attractive for value investors.

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

You can read more about First Merchants 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.

First United Corp’s Value Grade

Value Grade:

First United Corporation is a bank holding company. The Company's business is serving as the parent company of First United Bank & Trust (the Bank), First United Statutory Trust I, and First United Statutory Trust II. The Bank offers a range of services, such as checking, savings, money market deposit accounts, and certificates of deposit, business loans, personal loans, mortgage loans, lines of credit, and consumer-oriented retirement accounts including individual retirement accounts (IRAs) and employee benefit accounts. In addition, the Bank provides full brokerage services through a networking arrangement with Cetera Investment Services, LLC., a full-service broker-dealer. The Bank also provides safe deposit and night depository facilities, insurance products and trust services. The Bank operates approximately 26 banking offices, one customer care center and 34 Automated Teller Machines (ATMs) in Allegany County, Frederick County, Garrett County, Washington County, 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.

First United Corp has a Value Score of 94, which is considered to be undervalued.

First United Corp’s price-earnings ratio is 4.9 compared to the industry median at 8.7. This means that it has a lower price relative to its earnings compared to its peers. This makes First United Corp more attractive for value investors.

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

You can read more about First United 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.

IF Bancorp Inc’s Value Grade

Value Grade:

IF Bancorp, Inc. operates as a holding company for Iroquois Federal Savings and Loan Association (Iroquois Federal). The Company is primarily engaged in the business of directing, planning, and coordinating the business activities of Iroquois Federal. Iroquois Federal operates as a federally chartered savings association. Its business consists primarily of taking deposits from the public and investing those deposits, together with funds generated from operations and borrowings, in a range of loans. The Company offers a range of deposit accounts, including savings accounts, certificates of deposit, money market accounts, and commercial and personal checking accounts, among others. It also offers alternative delivery channels, including automated teller machines (ATMs), online banking and bill pay, and mobile banking with mobile deposit and bill pay. It conducts its operations in seven full-service banking offices, and a loan production and wealth management office in Missouri.

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.

IF Bancorp Inc has a Value Score of 69, which is considered to be undervalued.

IF Bancorp Inc’s price-earnings ratio is 9.7 compared to the industry median at 8.7. This means that it has a higher price relative to its earnings compared to its peers. This makes IF Bancorp Inc less attractive for value investors.

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

You can read more about IF 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.

Southern First Bancshares Inc’s Value Grade

Value Grade:

Southern First Bancshares, Inc. is a bank holding company. The Company?s primary business is to serve as the holding company for Southern First Bank (the Bank), a South Carolina state bank. The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the Federal Deposit Insurance Corporation (the FDIC) and providing commercial, consumer and mortgage loans to the general public. The Bank offers a range of lending services, including real estate, commercial, and equity-line consumer loans to individuals and small- to medium-sized businesses and professional firms. The Bank provides a range of financial services to individuals and companies in South Carolina, North Carolina, and Georgia. The Bank operates over eight retail offices located in the Greenville, Columbia, and Charleston markets of South Carolina, three retail offices in the Raleigh, Greensboro, and Charlotte markets of North Carolina and one retail office in Atlanta, Georgia.

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.

Southern First Bancshares Inc has a Value Score of 69, which is considered to be undervalued.

Southern First Bancshares Inc’s price-earnings ratio is 12.6 compared to the industry median at 8.7. This means that it has a higher price relative to its earnings compared to its peers. This makes Southern First Bancshares Inc less attractive for value investors.

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

You can read more about Southern First 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.

Southern Michigan Bancorp Inc’s Value Grade

Value Grade:

Southern Michigan Bancorp, Inc. is a bank holding company for Southern Michigan Bank and Trust (the Bank). The Bank offers individuals, businesses, institutions and governmental agencies a full range of commercial banking services, primarily in southern Michigan communities. It offers a variety of deposit, payment, credit, and other financial services to all types of customers. These services include time, savings, and demand deposits; safe deposit box services, and automated teller machine services. It offers trust and investment services, which include investment management, trustee services, institutional and personal custody, estate settlement, wealth management, estate planning assistance, wealth transfer planning assistance, charitable gift planning assistance, and cash management custody. The Bank operates approximately 13 branches within Battle Creek, Centreville, Coldwater, Constantine, Hillsdale, Marshall, Mendon, Portage, Tekonsha, Three Rivers and Union City.

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.

Southern Michigan Bancorp Inc has a Value Score of 79, which is considered to be undervalued.

Southern Michigan Bancorp Inc’s price-earnings ratio is 6.5 compared to the industry median at 8.7. This means that it has a lower price relative to its earnings compared to its peers. This makes Southern Michigan Bancorp Inc more attractive for value investors.

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

You can read more about Southern Michigan 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.

United Bankshares Inc’s Value Grade

Value Grade:

United Bankshares, Inc. is a financial holding company. The Company, through its subsidiaries, engages primarily in community banking and mortgage banking. The banking services offered are the acceptance of deposits in checking, savings, time and money market accounts; the making and servicing of personal, commercial, and floor plan loans, and the making of construction and real estate loans. Its segments include community banking and mortgage banking. The community banking segment includes both commercial and consumer lending and provides customers with such products as commercial loans, real estate loans, business financing and consumer loans. In addition, the community banking segment also provides various deposit products. The mortgage banking segment engages primarily in the origination and acquisition of residential mortgages for sale into the secondary market, through the Company's mortgage banking subsidiaries, George Mason Mortgage, LLC and Crescent Mortgage Company.

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.

United Bankshares Inc has a Value Score of 71, which is considered to be undervalued.

United Bankshares Inc’s price-earnings ratio is 11.4 compared to the industry median at 8.7. This means that it has a higher price relative to its earnings compared to its peers. This makes United Bankshares Inc less attractive for value investors.

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

You can read more about United Bankshares 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 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.

• First Hawaiian Inc stock has a Value Grade of B.
• First Merchants Corp stock has a Value Grade of B.
• First United Corp stock has a Value Grade of A.
• IF Bancorp Inc stock has a Value Grade of B.
• Southern First Bancshares Inc stock has a Value Grade of B.
• Southern Michigan Bancorp Inc stock has a Value Grade of B.
• United Bankshares Inc 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 Friday, August 04
• What You Need to Know About First Citizens BancShares Inc (Delaware)'s Q2 Earnings
• What You Need to Know About Midwestone Financial Group Inc (IOWA)'s Q2 Earnings
• What You Need to Know About NBT Bancorp Inc.'s Q2 Earnings

AAII Disclaimer

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