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 Tuesday, October 17, 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.

Capital Bancorp Inc’s Value Grade

Value Grade:

Capital Bancorp, Inc. is a bank holding company. The Company operates primarily through its wholly owned subsidiary, Capital Bank, N.A. (the Bank), a commercial-focused community bank. The Bank is principally engaged in the business of investing in commercial, real estate, and credit card loans and attracting deposits. The Company operates through three segments: Commercial Banking, Capital Bank Home Loans and OpenSky. The Commercial Banking segment operates in the Washington, District of Columbia (D.C.) and Baltimore metropolitan areas and focuses on providing personalized service to commercial clients throughout its area of operations. The Capital Bank Home Loans segment originates conventional and government-guaranteed residential mortgage loans on a national basis, for sale into the secondary market and in certain, limited circumstances for its loan portfolio. The OpenSky segment provides secured, partially secured and unsecured credit cards on a nationwide 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.

Capital Bancorp Inc has a Value Score of 78, which is considered to be undervalued.

When you look at Capital Bancorp Inc’s price-to-sales ratio at 1.68 compared to the industry median at 1.93, this company has a lower price relative to revenue compared to its peers. This could make Capital Bancorp Inc’s stock more attractive for value investors.

Capital Bancorp Inc’s price-earnings ratio is 7.76 compared to the industry median at 7.74. This means it has a higher share price relative to earnings compared to its peers. This could make Capital Bancorp Inc less attractive for value investors.

Now, let’s assess Capital Bancorp Inc’s EV/EBITDA ratio, also known as enterprise multiple. At 4.8, when compared to the industry median of 5.0, 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. Capital Bancorp Inc’s shareholder yield is lower than its industry median ratio of 4.29%. 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. Capital Bancorp Inc’s price-to-book ratio is higher than its industry median ratio of 0.87. This could make Capital Bancorp Inc less attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Capital 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. Capital Bancorp Inc’s price-to-free-cash-flow ratio is higher than its industry median ratio of 8.42. This could make Capital Bancorp Inc less attractive because the higher P/FCF ratio indicates that Capital 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.

Choiceone Financial Services Inc’s Value Grade

Value Grade:

ChoiceOne Financial Services, Inc. is a financial holding company for ChoiceOne Bank (the Bank). The Company's subsidiary, ChoiceOne Bank is a full-service banking institution that offers a range of deposit, payment, credit and other financial services to all types of customers. Its services include time, savings, demand deposits, safe deposit services and automated transaction machine services. It offers both commercial and consumer loans to corporations, partnerships and individuals. Its commercial lending covers categories, such as business, industry, agricultural, construction, inventory and real estate. The Bank's consumer loan department makes direct and indirect loans to consumers and purchasers of residential and real property. The Bank's primary market area lies within Kent, Muskegon, Newaygo and Ottawa counties in western Michigan and Lapeer, Macomb, and St. Clair counties in southeastern Michigan. The Bank also offers trust and wealth management 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.

Choiceone Financial Services Inc has a Value Score of 97, which is considered to be undervalued.

Choiceone Financial Services Inc’s price-earnings ratio is 5.5 compared to the industry median at 7.7. This means that it has a lower price relative to its earnings compared to its peers. This makes Choiceone Financial Services Inc more attractive for value investors.

Choiceone Financial Services Inc’s price-to-book ratio is higher than its peers. This could make Choiceone Financial Services Inc less attractive for value investors when compared to the industry median at 0.87.

You can read more about Choiceone Financial Services 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.

Codorus Valley Bancorp, Inc.’s Value Grade

Value Grade:

Codorus Valley Bancorp, Inc. is a bank holding company. PeoplesBank is its wholly owned bank subsidiary. PeoplesBank is a chartered bank that offers a full range of consumer, business, wealth management, and mortgage services at financial centers located in communities throughout South Central Pennsylvania and Central Maryland. In addition to the twenty-two full service financial centers, it has six financial centers located primarily within retirement communities that provide a full suite of services on a limited basis. The Bank provides a range of financial products and services, including commercial, mortgage, and consumer banking; trust and investment services; and insurance. The operations of the Company are conducted at banking offices in south central Virginia and north central North Carolina. Through these offices, the Company serves its primary market area of south-central Virginia, the New River Valley and Roanoke, Virginia, and north-central North Carolina.

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.

Codorus Valley Bancorp, Inc. has a Value Score of 84, which is considered to be undervalued.

Codorus Valley Bancorp, Inc.’s price-earnings ratio is 6.4 compared to the industry median at 7.7. This means that it has a lower price relative to its earnings compared to its peers. This makes Codorus Valley Bancorp, Inc. more attractive for value investors.

Codorus Valley Bancorp, Inc.’s price-to-book ratio is lower than its peers. This could make Codorus Valley Bancorp, Inc. more attractive for value investors when compared to the industry median at 0.87.

You can read more about Codorus Valley 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.

First US Bancshares Inc’s Value Grade

Value Grade:

First US Bancshares, Inc. is a bank holding company of First US Bank, (the Bank). The Bank conducts a general commercial banking business and offers banking services, such as demand, savings, individual retirement account and time deposits, personal and commercial loans, safe deposit box services, and remote deposit capture. The Bank provides a range of commercial banking services to small- and medium-sized businesses, property managers, business executives, professionals and other individuals. The Bank also performs indirect lending through third-party retailers and conducts this lending in 12 states. The Bank operates and serves its customers through 15 full-service banking offices located in Birmingham, Butler, Calera, Centreville, Gilbertown, Grove Hill, Harpersville, Jackson, Thomasville, Tuscaloosa and Woodstock, Alabama; Knoxville and Powell, Tennessee; and Rose Hill, Virginia; as well as loan production offices in Mobile, Alabama and the Chattanooga, Tennessee 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 US Bancshares Inc has a Value Score of 97, which is considered to be undervalued.

First US Bancshares Inc’s price-earnings ratio is 6.4 compared to the industry median at 7.7. This means that it has a lower price relative to its earnings compared to its peers. This makes First US Bancshares Inc more attractive for value investors.

First US Bancshares Inc’s price-to-book ratio is higher than its peers. This could make First US Bancshares Inc less attractive for value investors when compared to the industry median at 0.87.

You can read more about First US 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.

Wells Fargo & Co’s Value Grade

Value Grade:

Wells Fargo & Company is a financial services company. The Company provides a diversified set of banking, investment and mortgage products and services, as well as consumer and commercial finance, through banking locations and offices, the Internet (www.wellsfargo.com) and other distribution channels to individuals, businesses and institutions in states, the District of Columbia and in countries outside the United States. The Company provides consumer financial products and services, including checking and savings accounts, credit and debit cards, and auto, mortgage and home equity, and small business lending. In addition, the Company offers financial planning, private banking, investment management, and fiduciary services. The Company also provides financial solutions to businesses through products and services including traditional commercial loans and lines of credit, letters of credit, asset-based lending, trade financing, treasury management, and investment 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.

Wells Fargo & Co has a Value Score of 78, which is considered to be undervalued.

Wells Fargo & Co’s price-earnings ratio is 9.0 compared to the industry median at 7.7. This means that it has a higher price relative to its earnings compared to its peers. This makes Wells Fargo & Co less attractive for value investors.

Wells Fargo & Co’s price-to-book ratio is lower than its peers. This could make Wells Fargo & Co more attractive for value investors when compared to the industry median at 0.87.

You can read more about Wells Fargo & Co’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.

• Capital Bancorp Inc stock has a Value Grade of B.
• Choiceone Financial Services Inc stock has a Value Grade of A.
• Codorus Valley Bancorp, Inc. stock has a Value Grade of A.
• First US Bancshares Inc stock has a Value Grade of A.
• Wells Fargo & Co 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 Tuesday, October 17
• 4 Undervalued Banks Stocks for Monday, October 16
• Why Axos Financial Inc’s (AX) Stock Is Up 4.07%
• Why Banco Macro SA (ADR)’s (BMA) Stock Is Up 5.09%

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.