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 Monday, September 11, 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.

Community Trust Bancorp, Inc.’s Value Grade

Value Grade:

Community Trust Bancorp, Inc. (CTBI) is a bank holding company. The Company owns all the capital stock of one commercial bank and one trust company, serving small and mid-sized communities in eastern, northeastern, central, and south-central Kentucky, southern West Virginia, and northeastern Tennessee. The commercial bank is Community Trust Bank, Inc., Pikeville, Kentucky (CTB) and the trust company is Community Trust and Investment Company, Lexington, Kentucky. CTBI is engaged in a range of commercial and personal banking, and trust and wealth management activities, which include accepting time and demand deposits; making secured and unsecured loans to corporations, individuals, and others; providing cash management services to corporate and individual customers; issuing letters of credit; renting safe deposit boxes; and providing funds transfer services. The lending activities of CTB include making commercial, construction, mortgage and personal 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.

Community Trust Bancorp, Inc. has a Value Score of 76, which is considered to be undervalued.

When you look at Community Trust Bancorp, Inc.’s price-to-sales ratio at 2.73 compared to the industry median at 2.01, this company has a higher price relative to revenue compared to its peers. This could make Community Trust Bancorp, Inc.’s stock less attractive for value investors.

Community Trust Bancorp, Inc.’s price-earnings ratio is 7.94 compared to the industry median at 8.01. This means it has a lower share price relative to earnings compared to its peers. This could make Community Trust Bancorp, Inc. more attractive for value investors.

Now, let’s assess Community Trust Bancorp, Inc.’s EV/EBITDA ratio, also known as enterprise multiple. At 6.0, when compared to the industry median of 5.1, 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. Community Trust Bancorp, Inc.’s shareholder yield is higher than its industry median ratio of 4.13%. 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. Community Trust Bancorp, Inc.’s price-to-book ratio is higher than its industry median ratio of 0.90. This could make Community Trust Bancorp, Inc. less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Community Trust 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. Community Trust Bancorp, Inc.’s price-to-free-cash-flow ratio is higher than its industry median ratio of 8.69. This could make Community Trust Bancorp, Inc. less attractive because the higher P/FCF ratio indicates that Community Trust 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.

Eagle Bancorp Montana Inc’s Value Grade

Value Grade:

Eagle Bancorp Montana, Inc. is a bank holding company for Opportunity Bank of Montana (the Bank). It offers loan and deposit services to small businesses and individuals throughout Montana. It is a diversified lender with a focus on residential mortgage loans, commercial real estate mortgage loans, commercial business loans, agricultural loans and second mortgage/home equity loan products. It invests in various types of investment securities, including United States Treasury obligations, securities of various Federal agencies, certificates of deposits of insured banks and savings institutions, municipal securities, corporate debt securities and loans to other banking institutions. It offers a variety of deposit accounts, including checking, savings and money market accounts. It also originates in commercial real estate, home equity, and consumer and commercial loans. It originates residential one-four family loans held for investment and originated for sale in the secondary market.

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.

Eagle Bancorp Montana Inc has a Value Score of 83, which is considered to be undervalued.

Eagle Bancorp Montana Inc’s price-earnings ratio is 8.0 compared to the industry median at 8.0. This means that it has a higher price relative to its earnings compared to its peers. This makes Eagle Bancorp Montana Inc fairly attractive for value investors.

Eagle Bancorp Montana Inc’s price-to-book ratio is higher than its peers. This could make Eagle Bancorp Montana Inc less attractive for value investors when compared to the industry median at 0.90.

You can read more about Eagle Bancorp Montana 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 Bancorp’s Value Grade

Value Grade:

First BanCorp. is a financial holding company. As of December 31, 2016, the Company controlled two subsidiaries: FirstBank Puerto Rico (the Bank or FirstBank) and FirstBank Insurance Agency, Inc. (FirstBank Insurance Agency). It operates in six segments: Commercial and Corporate Banking, which consists of lending and other services; Consumer (Retail) Banking, which consists of consumer lending and deposit-taking activities; Mortgage Banking, which consists of the origination, sale, and servicing of a range of residential mortgage loan products and related hedging activities; Treasury and Investments, which consists of treasury and investment management functions; United States Operations, which consists of all banking activities conducted by FirstBank on the United States mainland, and Virgin Islands Operations, which consists of banking activities conducted by FirstBank in the United States Virgin Islands and British Virgin Islands, including retail and commercial banking 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 Bancorp has a Value Score of 79, which is considered to be undervalued.

First Bancorp’s price-earnings ratio is 8.8 compared to the industry median at 8.0. This means that it has a higher price relative to its earnings compared to its peers. This makes First Bancorp less attractive for value investors.

First Bancorp’s price-to-book ratio is lower than its peers. This could make First Bancorp more attractive for value investors when compared to the industry median at 0.90.

You can read more about First 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.

Midland States Bancorp Inc’s Value Grade

Value Grade:

Midland States Bancorp, Inc. is a diversified financial holding company. Its segments include Banking, Wealth Management, and Other. The Banking segment provides a range of financial products and services to consumers and businesses, including commercial, commercial real estate, mortgage and other consumer loan products; commercial equipment financing; mortgage loan sales and servicing; letters of credit; various types of deposit products, including checking, savings and time deposit accounts; merchant services; and corporate treasury management services. The Wealth Management segment operates under the name Midland Wealth Management, which consists of trust and wealth management products and services, including financial and estate planning, trustee and custodial services, investment management, tax and insurance planning, business planning, corporate retirement plan consulting and administration and retail brokerage services through a nationally recognized third party broker dealer.

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.

Midland States Bancorp Inc has a Value Score of 97, which is considered to be undervalued.

Midland States Bancorp Inc’s price-earnings ratio is 5.4 compared to the industry median at 8.0. This means that it has a lower price relative to its earnings compared to its peers. This makes Midland States Bancorp Inc more attractive for value investors.

Midland States Bancorp Inc’s price-to-book ratio is higher than its peers. This could make Midland States Bancorp Inc less attractive for value investors when compared to the industry median at 0.90.

You can read more about Midland States 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.

• Community Trust Bancorp, Inc. stock has a Value Grade of B.
• Eagle Bancorp Montana Inc stock has a Value Grade of A.
• First Bancorp stock has a Value Grade of B.
• Midland States 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 Monday, September 11
• 6 Undervalued Banks Stocks for Friday, September 08
• Why ACNB Corporation’s (ACNB) Stock Is Up 4.59%
• Why Alerus Financial Corp’s (ALRS) Stock Is Down 6.30%

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.