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, September 19, 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 Capital Inc’s Value Grade

Value Grade:

First Capital, Inc. is a financial holding company of First Harrison Bank (the Bank). The Bank is a chartered commercial bank, which provides a variety of banking services to individuals and business customers through 18 locations in Indiana and Kentucky. The Bank?s primary provides real estate mortgage loans. The Bank originates mortgage loans for sale in the secondary market. The Bank?s loan portfolio includes residential loans, construction loans, commercial real estate loans, commercial business loans, consumer loans and restructured loans. The Bank?s lending activities have concentrated on the origination of residential mortgages, both for sale in the secondary market and for retention in the Bank?s loan portfolio. The Bank originates construction loans for residential properties and, to a lesser extent, commercial properties. The Company?s loan portfolio also consists of single-family residential and commercial real estate loans in the Louisville, Kentucky metropolitan area.

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 Capital Inc has a Value Score of 82, which is considered to be undervalued.

When you look at First Capital Inc’s price-to-sales ratio at 2.48 compared to the industry median at 2.00, this company has a higher price relative to revenue compared to its peers. This could make First Capital Inc’s stock less attractive for value investors.

First Capital Inc’s price-earnings ratio is 7.47 compared to the industry median at 7.94. This means it has a lower share price relative to earnings compared to its peers. This could make First Capital Inc more attractive for value investors.

Now, let’s assess First Capital Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 4.7, 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. First Capital Inc’s shareholder yield is lower than its industry median ratio of 4.15%. 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 Capital Inc’s price-to-book ratio is higher than its industry median ratio of 0.90. This could make First Capital Inc less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at First Capital 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 Capital Inc’s price-to-free-cash-flow ratio is lower than its industry median ratio of 8.67. This could make First Capital Inc more attractive because the lower P/FCF ratio indicates that First Capital 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.

Hancock Whitney Corp’s Value Grade

Value Grade:

Hancock Whitney Corporation is a financial services company. It provides financial services through its bank subsidiary, Hancock Whitney Bank (the Bank), a Mississippi state bank. The Bank offers a range of traditional and online banking services to commercial, small business and retail customers, providing a range of transaction and savings deposit products, treasury management services, secured and unsecured loan products (including revolving credit facilities), letters of credit and similar financial guarantees. It provides trust and investment management services to retirement plans, corporations and individuals and provides its customers access to investment advisory and brokerage products. Its primary lending focus is to provide commercial, consumer and real estate loans to consumers, small and middle market businesses, and corporate clients in the markets and sectors served by the Bank. The Bank, through its trust department, offers a full range of trust services on a fee basis.

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.

Hancock Whitney Corp has a Value Score of 86, which is considered to be undervalued.

Hancock Whitney Corp’s price-earnings ratio is 6.5 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 Hancock Whitney Corp more attractive for value investors.

Hancock Whitney Corp’s price-to-book ratio is lower than its peers. This could make Hancock Whitney Corp fairly attractive for value investors when compared to the industry median at 0.90.

You can read more about Hancock Whitney 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.

Mercantile Bank Corp’s Value Grade

Value Grade:

Mercantile Bank Corporation is the bank holding company for Mercantile Bank. Its bank is a state banking company. It provides commercial banking services primarily to small- to medium-sized businesses and retail banking services. Its operations are centered around the West and Central portions of Michigan. It makes secured and unsecured commercial, construction, mortgage and consumer loans, and accepts checking, savings and time deposits. It also enables customers to conduct certain loan and deposit transactions by personal computer and through mobile applications. Its insurance product offerings include private passenger automobiles, homeowners, personal inland marine, boat owners, recreational vehicles, dwelling fire, umbrella policies, small businesses, and life insurance products. It offers a range of loans, such as home equity loans, personal loans, overdraft protection, and student 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.

Mercantile Bank Corp has a Value Score of 87, which is considered to be undervalued.

Mercantile Bank Corp’s price-earnings ratio is 6.3 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 Mercantile Bank Corp more attractive for value investors.

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

You can read more about Mercantile Bank 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.

United Bancshares Inc’s Value Grade

Value Grade:

United Bancshares, Inc. is a financial holding company. Its principal subsidiary is The Union Bank Company (Union Bank). Its core business operations are conducted through its subsidiaries, Union Bank and UBC Risk Management, Inc. (UBC Risk Management). Union Bank is a full-service community bank offering a full range of commercial and consumer banking services. Union Bank offers a range of deposit services, including checking accounts, savings and money market accounts, certificates of deposit and individual retirement accounts. Wealth management services are offered by Union Bank through an arrangement with LPL Financial LLC, a registered broker/dealer. Union Bank?s loan products include commercial and residential real estate loans, agricultural loans, commercial and industrial loans, home equity loans, various types of consumer loans and others. UBC Risk Management is a captive insurance subsidiary that insures various liability and property damage policies for the 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 Bancshares Inc has a Value Score of 95, which is considered to be undervalued.

United Bancshares Inc’s price-earnings ratio is 5.6 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 United Bancshares Inc more attractive for value investors.

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

You can read more about United 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.

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.

• First Capital Inc stock has a Value Grade of A.
• Hancock Whitney Corp stock has a Value Grade of A.
• Mercantile Bank Corp stock has a Value Grade of A.
• United Bancshares 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 Tuesday, September 19
• 4 Undervalued Banks Stocks for Monday, September 18
• Why Axos Financial Inc’s (AX) Stock Is Down 4.79%
• Why Bridgewater Bancshares Inc’s (BWB) Stock Is Down 4.02%

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.