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 Thursday, September 21, 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.

Capstar Financial Holdings Inc’s Value Grade

Value Grade:

CapStar Financial Holdings, Inc. is a bank holding company. The Company operates primarily through its wholly owned subsidiary, CapStar Bank (the Bank). The Bank's products and services include commercial banking that offers a full range of banking services to businesses and professionals, including deposit and savings accounts, treasury management services, as well as financing for commercial and industrial needs, owner-occupied real estate, construction and land development, and non-owner-occupied income producing real estate; consumer Banking that offers a range of banking services to individuals, including deposit and savings accounts as well as residential real estate loans, home equity loans, and other consumer loans some of which are sold in the secondary market, and Wealth Management that specializes in helping individuals develop sound retirement strategies. The Company?s commercial and industrial loans consist of loans to small to mid-sized 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.

Capstar Financial Holdings Inc has a Value Score of 89, which is considered to be undervalued.

When you look at Capstar Financial Holdings Inc’s price-to-sales ratio at 2.12 compared to the industry median at 1.99, this company has a higher price relative to revenue compared to its peers. This could make Capstar Financial Holdings Inc’s stock less attractive for value investors.

Capstar Financial Holdings Inc’s price-earnings ratio is 9.32 compared to the industry median at 7.86. This means it has a higher share price relative to earnings compared to its peers. This could make Capstar Financial Holdings Inc less attractive for value investors.

Now, let’s assess Capstar Financial Holdings Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 5.4, 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. Capstar Financial Holdings Inc’s shareholder yield is higher than its industry median ratio of 4.20%. 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. Capstar Financial Holdings Inc’s price-to-book ratio is lower than its industry median ratio of 0.90. This could make Capstar Financial Holdings Inc more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Capstar Financial Holdings Inc’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Capstar Financial Holdings Inc’s price-to-free-cash-flow ratio is lower than its industry median ratio of 8.61. This could make Capstar Financial Holdings Inc more attractive because the lower P/FCF ratio indicates that Capstar Financial Holdings 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 Reliance Bancshares Inc’s Value Grade

Value Grade:

First Reliance Bancshares, Inc. is a holding company for its subsidiary, First Reliance Bank (the Bank). The principal business activity of the Bank is to provide banking services to domestic markets throughout South Carolina and North Carolina. The Company’s personal products include checking, savings, credit cards, personal loans, mortgage and wealth strategies. Its services include online/mobile banking (Apple/Google/Samsung pay), personal loan payment, mortgage payment, convenient services (bounce protection), order checks and debit cards. The Bank’s business products include checking, savings, treasury services and wealth strategies. Its business borrowing includes business line of credit, installment loans, overdraft protection, commercial real estate, credit cards and business loan checklist.

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 Reliance Bancshares Inc has a Value Score of 70, which is considered to be undervalued.

First Reliance Bancshares Inc’s price-earnings ratio is 9.1 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 Reliance Bancshares Inc less attractive for value investors.

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

You can read more about First Reliance 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.

Home Bancshares Inc’s Value Grade

Value Grade:

Home BancShares, Inc. is a bank holding company. The Company is primarily engaged in providing a range of commercial and retail banking and related financial services to businesses, real estate developers and investors, individuals and municipalities through its wholly owned community bank subsidiary, Centennial Bank (the Bank). It originates loans primarily secured by single and multi-family real estate, residential construction and commercial buildings. It offers a range of deposit services, including checking, savings, money market accounts and certificates of deposits. It also provides products and services, including 24-hour Internet banking, mobile banking and voice response information, cash management, overdraft protection, direct deposit, safe deposit boxes, United States savings bonds and automatic account transfers. It has 76 branches in Arkansas, 78 branches in Florida, 63 branches in Texas, five branches in Alabama and one branch in New York 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.

Home Bancshares Inc has a Value Score of 64, which is considered to be undervalued.

Home Bancshares Inc’s price-earnings ratio is 10.1 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 Home Bancshares Inc less attractive for value investors.

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

You can read more about Home 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.

OceanFirst Financial Corp.’s Value Grade

Value Grade:

OceanFirst Financial Corp. is a holding company for OceanFirst Bank N.A. (the Bank). The Bank is a full-service regional bank delivering financial products and services, which include commercial and consumer financing, deposit services, and wealth management products and services, throughout New Jersey and the metropolitan markets of Philadelphia, New York, Baltimore, Washington D.C., and Boston. The Bank's commercial loans include multi-family and commercial real estate loans, commercial construction loans, and commercial and industrial loans. The Bank also offers investment products for sale through its retail branch network. The Bank is focused on growth opportunities in areas, including derivative contracts, trust and asset management, digital product offerings, and equity investments in non-bank finance companies. It operates approximately 37 branch offices, and deposit production facilities located throughout New Jersey and metropolitan area of New York City and Philadelphia.

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.

OceanFirst Financial Corp. has a Value Score of 96, which is considered to be undervalued.

OceanFirst Financial Corp.’s price-earnings ratio is 6.1 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 OceanFirst Financial Corp. more attractive for value investors.

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

You can read more about OceanFirst Financial 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 Bancorp Inc’s Value Grade

Value Grade:

United Bancorp, Inc. is a bank holding company. The Company has one wholly owned subsidiary bank, Unified Bank, Martins Ferry, Ohio (the Bank). The Bank serves customers in northeastern, eastern, southeastern and south-central Ohio and the Northern panhandle of West Virginia and is engaged in the business of commercial and retail banking in Belmont, Harrison, Jefferson, Tuscarawas, Carroll, Athens, Hocking, and Fairfield counties and the surrounding localities. The bank also operates in Marshall County West Virginia. The Bank provides a range of banking and financial services, which includes accepting demand, savings and time deposits and granting commercial, real estate and consumer loans. The Bank's loan portfolio includes commercial loans, commercial real estate loans, residential real estate loans and installment loans. The Bank conducts its business through its main office and standalone operations center in Martins Ferry, Ohio and about 19 branches located in the counties.

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

United Bancorp Inc’s price-earnings ratio is 7.7 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 Bancorp Inc more attractive for value investors.

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

You can read more about United 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.

Valley National Bancorp’s Value Grade

Value Grade:

Valley National Bancorp is a bank holding company and financial holding company. The Company?s principal subsidiary includes Valley National Bank (the Bank). It offers a full suite of national and regional banking solutions through various commercial, retail, insurance and wealth management financial services products. It provides personalized service and customized solutions to assist its customers with their financial service needs. Its solutions include, but are not limited to, traditional consumer and commercial deposit and lending products, commercial real estate financing, small business loans, equipment financings, insurance and wealth management financial services products, cash management solutions, and personal financing solutions, such as residential mortgages, home equity loans and automobile financing. It also offers niche financial services, including loan and deposit products for homeowners? associations, insurance premium financing and cannabis-related business banking.

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.

Valley National Bancorp has a Value Score of 92, which is considered to be undervalued.

Valley National Bancorp’s price-earnings ratio is 7.1 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 Valley National Bancorp more attractive for value investors.

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

You can read more about Valley National 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.

Westamerica Bancorporation’s Value Grade

Value Grade:

Westamerica Bancorporation is a bank holding company. The Company provides a full range of banking services to individual and commercial customers in Northern and Central California through its subsidiary bank, Westamerica Bank (the Bank). The Bank is a state-chartered commercial bank, which provides consumer and commercial financing with branches throughout Northern and Central California. The principal communities served are located in Northern and Central California, from Mendocino, Lake and Nevada Counties in the north to Kern County in the south. In addition, the Bank owns Community Banker Services Corporation (CBSC), a company engaged in providing the Company and its subsidiaries with data processing services and other support functions. The Bank is engaged in the banking business through 77 branch offices in 21 counties in Northern and Central California. It owns 28 banking office locations and one centralized administrative service center facility and leases 55 facilities.

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.

Westamerica Bancorporation has a Value Score of 75, which is considered to be undervalued.

Westamerica Bancorporation’s price-earnings ratio is 7.4 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 Westamerica Bancorporation more attractive for value investors.

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

You can read more about Westamerica Bancorporation’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.

• Capstar Financial Holdings Inc stock has a Value Grade of A.
• First Reliance Bancshares Inc stock has a Value Grade of B.
• Home Bancshares Inc stock has a Value Grade of B.
• OceanFirst Financial Corp. stock has a Value Grade of A.
• United Bancorp Inc stock has a Value Grade of B.
• Valley National Bancorp stock has a Value Grade of A.
• Westamerica Bancorporation 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 Thursday, September 21
• Which Is a Better Investment, Grupo Aval Acciones y Valores SA - ADR or Grupo Financiero Galicia S.A. (ADR) Stock?
• 5 Undervalued Banks Stocks for Wednesday, September 20
• Why Banco Macro SA (ADR)’s (BMA) Stock Is Down 4.07%

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