Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 3 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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3 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 3 undervalued stocks in the Banks industry for Tuesday, September 12, 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.

Cathay General Bancorp’s Value Grade

Value Grade:

Cathay General Bancorp is the holding company of Cathay Bank, a California state-chartered commercial bank (the Bank). The Bank is a commercial bank, serving individuals, professionals, and small to medium-sized businesses in the local markets in which its branches are located. It provides commercial mortgage loans, commercial loans, United States small business administration loans, residential mortgage loans, real estate construction loans, home equity lines of credit, and installment loans to individuals for, household and other consumer expenditures. It provides commercial mortgage loans, commercial loans, home equity lines of credit, installment loans and distribution and maturity of loans. It offers products and services to businesses, such as checking and deposit, lines of credits, commercial and commercial real estate loans, merchant services and payment processing, treasury management services, international banking and financing services, and other customary 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.

Cathay General Bancorp has a Value Score of 90, which is considered to be undervalued.

When you look at Cathay General Bancorp’s price-to-sales ratio at 2.47 compared to the industry median at 2.01, this company has a higher price relative to revenue compared to its peers. This could make Cathay General Bancorp’s stock less attractive for value investors.

Cathay General Bancorp’s price-earnings ratio is 6.97 compared to the industry median at 7.95. This means it has a lower share price relative to earnings compared to its peers. This could make Cathay General Bancorp more attractive for value investors.

Now, let’s assess Cathay General Bancorp’s EV/EBITDA ratio, also known as enterprise multiple. At 1.9, when compared to the industry median of 5.1, 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. Cathay General Bancorp’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. Cathay General Bancorp’s price-to-book ratio is higher than its industry median ratio of 0.90. This could make Cathay General Bancorp less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Cathay General Bancorp’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Cathay General Bancorp’s price-to-free-cash-flow ratio is lower than its industry median ratio of 8.77. This could make Cathay General Bancorp more attractive because the lower P/FCF ratio indicates that Cathay General Bancorp 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 Financial Northwest Inc’s Value Grade

Value Grade:

First Financial Northwest, Inc. is the holding company for First Financial Northwest Bank (the Bank). The Bank focuses on its lending activities primarily on loans secured by commercial real estate, construction/land, first mortgages on one-to-four family residences, multifamily, and business lending. It offers secured consumer loans, including savings account loans, auto loans and home equity loans that include lines of credit and second mortgage term loans. It originates construction/land loans primarily to residential builders for the construction of single-family residences, condominiums, townhouses, multifamily properties and residential developments located in its market area. Its land development loans are generally made to builders for preparation of a building site. Its investment portfolio consists of mortgage-backed securities, municipal bonds, United States government agency obligations, and corporate bonds. It serves King, Snohomish, Pierce and Kitsap counties, Washington.

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 Financial Northwest Inc has a Value Score of 78, which is considered to be undervalued.

First Financial Northwest Inc’s price-earnings ratio is 10.8 compared to the industry median at 7.9. This means that it has a higher price relative to its earnings compared to its peers. This makes First Financial Northwest Inc less attractive for value investors.

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

You can read more about First Financial Northwest 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.

Great Southern Bancorp, Inc.’s Value Grade

Value Grade:

Great Southern Bancorp, Inc. is a bank holding company of Great Southern Bank (the Bank). Through the Bank and subsidiaries of the Bank, the Company primarily offers a variety of banking and banking-related services. The Bank offers a range of banking services through its 92 banking centers located in southern and central Missouri; the Kansas City, Missouri area; the St. Louis area; eastern Kansas; northwestern Arkansas; the Minneapolis area and eastern, western, and central Iowa. The Bank is principally engaged in the business of originating commercial real estate loans, construction loans, other commercial loans, multi-family and single-family residential real estate loans and consumer loans and funding these loans by attracting deposits from the general public, obtaining brokered deposits, and through borrowings from the Federal Home Loan Bank of Des Moines (the FHLBank) and others. The Bank also operates commercial loan production offices in Atlanta, Charlotte, Chicago, 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.

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

Great Southern Bancorp, Inc.’s price-earnings ratio is 7.8 compared to the industry median at 7.9. This means that it has a lower price relative to its earnings compared to its peers. This makes Great Southern Bancorp, Inc. more attractive for value investors.

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

You can read more about Great Southern 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 3 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.

• Cathay General Bancorp stock has a Value Grade of A.
• First Financial Northwest Inc stock has a Value Grade of B.
• Great Southern Bancorp, Inc. stock has a Value Grade of B.

Now that you have a bit more background about each of the 3 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.

• 3 Undervalued Banks Stocks for Tuesday, September 12
• 4 Undervalued Banks Stocks for Monday, September 11
• Why Mitsubishi UFJ Financial Group Inc (ADR)’s (MUFG) Stock Is Up 5.37%
• Why Nu Holdings Ltd’s (NU) Stock Is Up 8.37%

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.