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 Wednesday, October 18, 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.

Colony Bankcorp Inc’s Value Grade

Value Grade:

Colony Bankcorp, Inc. is a bank holding company that operates through its subsidiary, Colony Bank (the Bank). The Bank's product line includes loans to small and medium-sized businesses, residential and commercial construction and land development loans, commercial real estate loans, commercial loans, agri-business and production loans, residential mortgage loans, home equity loans, consumer loans and a variety of demand, savings and time deposit products. The Company operates through three segments: the Banking Division, the Retail Mortgage Division and the Small Business Specialty Lending Division. The Banking Division derives full-service financial services, including commercial loans, consumer loans and deposit accounts. The Retail Mortgage offers services for one-to-four family residential mortgage loans. The Small Business Specialty Lending Division offers small business administration (SBA) and United States Department of Agriculture (USDA) government guaranteed 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.

Colony Bankcorp Inc has a Value Score of 91, which is considered to be undervalued.

When you look at Colony Bankcorp Inc’s price-to-sales ratio at 1.62 compared to the industry median at 1.96, this company has a lower price relative to revenue compared to its peers. This could make Colony Bankcorp Inc’s stock more attractive for value investors.

Colony Bankcorp Inc’s price-earnings ratio is 8.37 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 Colony Bankcorp Inc less attractive for value investors.

Now, let’s assess Colony Bankcorp 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. Colony Bankcorp Inc’s shareholder yield is higher than its industry median ratio of 4.25%. 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. Colony Bankcorp Inc’s price-to-book ratio is lower than its industry median ratio of 0.89. This could make Colony Bankcorp Inc more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at Colony Bankcorp Inc’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. Colony Bankcorp Inc’s price-to-free-cash-flow ratio is lower than its industry median ratio of 8.50. This could make Colony Bankcorp Inc more attractive because the lower P/FCF ratio indicates that Colony Bankcorp 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 Financial Bancorp’s Value Grade

Value Grade:

First Financial Bancorp. (First Financial) is a regional bank holding company. The Company is engaged in the business of commercial banking, other banking and banking-related activities through its subsidiary, First Financial Bank (the Bank). It provides a range of banking services to individuals and businesses, which includes commercial lending, real estate lending and consumer financing. The Company offers deposit products that include interest-bearing accounts, non-interest-bearing accounts, time deposit and cash management services for commercial customers. The Bank also provides a range of trust and wealth management services through its Wealth Management line of business. The Bank operates approximately 132 full-service banking centers in Ohio, Illinois, Indiana and Kentucky. The Bank also operates Commercial Finance division, which is responsible for its insurance lending business and franchise lending business, from a non-banking center location in Indiana.

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 Bancorp has a Value Score of 73, which is considered to be undervalued.

First Financial Bancorp’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 First Financial Bancorp more attractive for value investors.

First Financial Bancorp’s price-to-book ratio is lower than its peers. This could make First Financial Bancorp fairly attractive for value investors when compared to the industry median at 0.89.

You can read more about First Financial 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.

First Foundation Inc’s Value Grade

Value Grade:

First Foundation Inc. is a financial services company. The Company provides a platform of financial services to individuals, businesses and other organizations. The Company conducts its operations through its subsidiaries, First Foundation Advisors (FFA) and First Foundation Bank (FFB), and FFB?s wholly owned subsidiaries, First Foundation Insurance Services (FFIS), First Foundation Public Finance (FFPF) and Blue Moon Management, LLC. It operates through two segments: Banking and Wealth Management. Its Banking segment includes the operations of FFB, FFIS, FFPF, and Blue Moon Management LLC and Wealth Management segment includes the operations of FFA. FFB offers a range of loan products, deposit products, treasury management products and services, and trust services. FFA offers investment advisory and wealth management services primarily to individuals and their families, family businesses and other affiliated organizations. It operates in California, Nevada, Florida, Texas, and Hawaii.

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 Foundation Inc has a Value Score of 91, which is considered to be undervalued.

First Foundation Inc’s price-to-book ratio is higher than its peers. This could make First Foundation Inc less attractive for value investors when compared to the industry median at 0.89.

You can read more about First Foundation 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.

Hilltop Holdings Inc.’s Value Grade

Value Grade:

Hilltop Holdings Inc. is a diversified financial holding company. The Company operates through three segments: banking, broker-dealer, and mortgage origination. The banking segment includes the operations of PlainsCapital Bank (the Bank). The banking segment primarily provides business and consumer banking services from offices located throughout Texas and generates revenue from its portfolio of earning assets. The broker-dealer segment includes the operations of Securities Holdings, which operates through its wholly owned subsidiaries, Hilltop Securities, Momentum Independent Network and Hilltop Securities Asset Management, LLC. This segment offers investment advisory and securities brokerage services. The mortgage origination segment includes the operations of PrimeLending, which offers a variety of loan products. This segment includes origination and servicing of loans and selling these loans in the secondary market.

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.

Hilltop Holdings Inc. has a Value Score of 61, which is considered to be undervalued.

Hilltop Holdings Inc.’s price-earnings ratio is 18.2 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 Hilltop Holdings Inc. less attractive for value investors.

Hilltop Holdings Inc.’s price-to-book ratio is lower than its peers. This could make Hilltop Holdings Inc. fairly attractive for value investors when compared to the industry median at 0.89.

You can read more about Hilltop Holdings 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.

• Colony Bankcorp Inc stock has a Value Grade of A.
• First Financial Bancorp stock has a Value Grade of B.
• First Foundation Inc stock has a Value Grade of A.
• Hilltop Holdings Inc. stock has a Value Grade of B.

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 Wednesday, October 18
• Which Is a Better Investment, Banco Bilbao Vizcaya Argentaria SA (ADR) or Banco de Chile (ADR) Stock?
• Which Is a Better Investment, Banco Bilbao Vizcaya Argentaria SA (ADR) or KeyCorp Stock?
• 5 Undervalued Banks Stocks for Tuesday, October 17

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.