Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 5 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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5 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 5 undervalued stocks in the Banks industry for Wednesday, September 20, 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.

Bancolombia SA (ADR)’s Value Grade

Value Grade:

Bancolombia S.A. (Bancolombia) is a financial institution engaged in providing a range of financial products and services to a diversified individual, corporate, and government customer base throughout Colombia, Latin America and the Caribbean region. The Bank operates through 10 segments: Banking Colombia, Banking Panama, Banking El Salvador, Leasing, Trust, Investment Banking, Brokerage, Off Shore and All other. It delivers its products and services through its regional network comprising Colombia's non-Government owned banking network, El Salvador's financial conglomerate by gross loans, Guatemala's bank, Panama's bank and off-shore banking subsidiaries in Panama, Cayman and Puerto Rico, as well as subsidiaries in Peru. The Bank and its subsidiaries offer Savings And Investment, Ahorro A La Mano, Financing, Mortgage Banking, Factoring, Financial and Operating Leases, Capital Markets, eTrading, Cash Management, Foreign Currency, Bancassurance, Investment Banking and Trust 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.

Bancolombia SA (ADR) has a Value Score of 98, which is considered to be undervalued.

When you look at Bancolombia SA (ADR)’s price-to-sales ratio at 0.77 compared to the industry median at 2.00, this company has a lower price relative to revenue compared to its peers. This could make Bancolombia SA (ADR)’s stock more attractive for value investors.

Bancolombia SA (ADR)’s price-earnings ratio is 4.10 compared to the industry median at 7.88. This means it has a lower share price relative to earnings compared to its peers. This could make Bancolombia SA (ADR) more attractive for value investors.

Now, let’s assess Bancolombia SA (ADR)’s EV/EBITDA ratio, also known as enterprise multiple. At 3.1, 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. Bancolombia SA (ADR)’s shareholder yield is higher than its industry median ratio of 4.18%. 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. Bancolombia SA (ADR)’s price-to-book ratio is lower than its industry median ratio of 0.90. This could make Bancolombia SA (ADR) more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Bancolombia SA (ADR)’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Bancolombia SA (ADR)’s price-to-free-cash-flow ratio is lower than its industry median ratio of 8.56. This could make Bancolombia SA (ADR) more attractive because the lower P/FCF ratio indicates that Bancolombia SA (ADR) 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.

Home Bancorp, Inc.’s Value Grade

Value Grade:

Home Bancorp, Inc. is a bank holding company for Home Bank, N.A. (the Bank), a nationally chartered bank. The Bank conducts business through approximately 43 banking offices in the Acadiana, Baton Rouge, Greater New Orleans and Northshore (of Lake Pontchartrain) regions of south Louisiana, the Natchez region of west Mississippi and Houston region of Texas. The Bank is primarily engaged in attracting deposits from the public and using those funds to invest in loans and securities. Its principal sources of funds are customer deposits, repayments of loans, repayments of investments and funds borrowed from outside sources such as the Federal Home Loan Bank (FHLB) of Dallas. These funds are primarily used for the origination of loans, including one-to four-family first mortgage loans, home equity loans and lines, commercial real estate loans, construction and land loans, multi-family residential loans, commercial and industrial loans, and consumer 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.

Home Bancorp, Inc. has a Value Score of 92, which is considered to be undervalued.

Home Bancorp, Inc.’s price-earnings ratio is 6.2 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 Home Bancorp, Inc. more attractive for value investors.

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

You can read more about Home 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.

HarborOne Bancorp Inc’s Value Grade

Value Grade:

HarborOne Bancorp, Inc. is the holding company for HarborOne Bank (the Bank). The Company?s segments include HarborOne Bank and HarborOne Mortgage. The HarborOne Bank consists primarily of interest earned on loans and investment securities and service charges on deposit accounts. The HarborOne Mortgage is comprised of interest earned on loans and fees received as a result of the residential mortgage origination, sale and servicing process. The residential real estate portfolio loans are originated by HarborOne Mortgage and purchased by the Bank. It provides a variety of financial services to individuals and businesses through its approximately 31 full-service bank branches in Massachusetts and Rhode Island, and a commercial lending office in each of Boston, Massachusetts and Providence, Rhode Island. Its deposit products are checking, money market, savings and term certificate of deposit accounts, while its primary lending products are commercial real estate, commercial 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.

HarborOne Bancorp Inc has a Value Score of 90, which is considered to be undervalued.

HarborOne Bancorp Inc’s price-earnings ratio is 11.2 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 HarborOne Bancorp Inc less attractive for value investors.

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

You can read more about HarborOne 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.

Isabella Bank Corp’s Value Grade

Value Grade:

Isabella Bank Corporation is a financial service holding company. The Company's wholly owned subsidiary, Isabella Bank (the Bank), has approximately 29 banking offices located throughout Clare, Gratiot, Isabella, Mecosta, Midland, Montcalm, and Saginaw counties. The Bank offers an array of banking and wealth management services to businesses, institutions, individuals and their families. The Bank's lending activities include loans for commercial and agricultural operations and real estate purposes, residential real estate loans, and consumer loans. The Bank limit lending activities primarily to local markets and purchased loans from the secondary market are minimal. Deposit services offered by the Bank include checking accounts, savings accounts, certificates of deposit, direct deposits, cash management services, mobile and Internet banking, electronic bill pay services, and automated teller machines. The Bank also offers full-service investment management, trust and estate 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.

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

Isabella Bank Corp’s price-earnings ratio is 6.8 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 Isabella Bank Corp more attractive for value investors.

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

You can read more about Isabella 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.

Sumitomo Mitsui Financial Group Inc(ADR)’s Value Grade

Value Grade:

Sumitomo Mitsui Financial Group Inc, formerly Sumitomo Mitsui Financial Group Co Ltd, is a Japan-based company engaged in the commercial banking, leasing, securities and consumer finance business. The Company has five business segments. The Wholesale segment is engaged in the banking, leasing and securities business, as well as the venture capital business and management consulting services business for domestic large companies. The Retail segment is engaged in the banking, securities, credit cards and consumer finance business, as well as pension management business for domestic individuals and small corporate customers. The Global segment is engaged in the banking, leasing and securities business, as well as swap-related business for overseas Japanese and non-Japanese companies. The Market segment is engaged in the banking, securities and other financial markets related businesses. The Head Office Management segment is engaged in the system development and other businesses.

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.

Sumitomo Mitsui Financial Group Inc(ADR) has a Value Score of 78, which is considered to be undervalued.

Sumitomo Mitsui Financial Group Inc(ADR)’s price-earnings ratio is 12.9 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 Sumitomo Mitsui Financial Group Inc(ADR) less attractive for value investors.

Sumitomo Mitsui Financial Group Inc(ADR)’s price-to-book ratio is higher than its peers. This could make Sumitomo Mitsui Financial Group Inc(ADR) less attractive for value investors when compared to the industry median at 0.90.

You can read more about Sumitomo Mitsui Financial Group Inc(ADR)’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 5 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.

• Bancolombia SA (ADR) stock has a Value Grade of A.
• Home Bancorp, Inc. stock has a Value Grade of A.
• HarborOne Bancorp Inc stock has a Value Grade of A.
• Isabella Bank Corp stock has a Value Grade of A.
• Sumitomo Mitsui Financial Group Inc(ADR) stock has a Value Grade of B.

Now that you have a bit more background about each of the 5 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.

• 5 Undervalued Banks Stocks for Wednesday, September 20
• 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%

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.