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 Friday, October 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.

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 74, which is considered to be undervalued.

When you look at First Financial Bancorp’s price-to-sales ratio at 2.35 compared to the industry median at 1.91, this company has a higher price relative to revenue compared to its peers. This could make First Financial Bancorp’s stock less attractive for value investors.

First Financial Bancorp’s price-earnings ratio is 7.09 compared to the industry median at 7.63. This means it has a lower share price relative to earnings compared to its peers. This could make First Financial Bancorp more attractive for value investors.

Now, let’s assess First Financial Bancorp’s EV/EBITDA ratio, also known as enterprise multiple. At 5.2, 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. First Financial Bancorp’s shareholder yield is the same than its industry median ratio of 4.33%. 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 Financial Bancorp’s price-to-book ratio is lower than its industry median ratio of 0.87. This could make First Financial Bancorp more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at First Financial Bancorp’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. First Financial Bancorp’s price-to-free-cash-flow ratio is higher than its industry median ratio of 8.12. This could make First Financial Bancorp less attractive because the higher P/FCF ratio indicates that First Financial Bancorp 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.

Fifth Third Bancorp’s Value Grade

Value Grade:

Fifth Third Bancorp (the Bancorp) is a bank holding company for Fifth Third Bank, National Association. The Bancorp conducts its principal lending, deposit gathering, transaction processing and service advisory activities through its banking and non-banking subsidiaries from banking centers located throughout the Midwestern and Southeastern regions of the United States. The Bancorp operates through three segments: Commercial Banking, which offers credit intermediation, cash management and financial services to large and middle-market businesses and government and professional customers; Consumer and Small Business Banking provides a full range of deposit and loan products to individuals and small businesses through a network of full-service banking centers and relationships with indirect and correspondent loan originators, and Wealth and Asset Management, which provides a range of wealth management services for individuals, companies and nonprofit organizations.

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.

Fifth Third Bancorp has a Value Score of 86, which is considered to be undervalued.

Fifth Third Bancorp’s price-earnings ratio is 7.1 compared to the industry median at 7.6. This means that it has a lower price relative to its earnings compared to its peers. This makes Fifth Third Bancorp more attractive for value investors.

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

You can read more about Fifth Third 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.

Hanmi Financial Corp’s Value Grade

Value Grade:

Hanmi Financial Corporation is a holding company for Hanmi Bank (the Bank), which serves multi-ethnic communities through its network of 35 full-service branches and eight loan production offices in California, Texas, Illinois, Virginia, New Jersey, New York, Colorado, Washington and Georgia. Hanmi Bank specializes in real estate, commercial, SBA and trade finance lending to small and middle market businesses. The Bank originates loans for its own portfolio and for sale in the secondary market. Its lending activities include real estate loans (commercial property, construction and residential property), commercial and industrial loans (commercial term, commercial lines of credit and international), equipment lease financing and small business administration (SBA) loans. The Bank also maintains a small construction portfolio for multifamily and commercial and industrial properties within its market areas.

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.

Hanmi Financial Corp has a Value Score of 97, which is considered to be undervalued.

Hanmi Financial Corp’s price-earnings ratio is 4.8 compared to the industry median at 7.6. This means that it has a lower price relative to its earnings compared to its peers. This makes Hanmi Financial Corp more attractive for value investors.

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

You can read more about Hanmi 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.

KB Financial Group, Inc. (ADR)’s Value Grade

Value Grade:

KB Financial Group Inc is a Korean-based company principally engaged in the financial business. The Company operates its business through six segments. The Banking segment consists of retail banking services provided by Kookmin Bank. This segment is engaged in the lending and receiving of large corporations, small and medium-sized businesses, SOHO and household customers, the investment of securities and derivatives, and financing, among others. The Credit Card segment operates credit sales, cash advances and card loans, among others. The Non-life Insurance segment is engaged in the non-life insurance. The Securities segment is engaged in the trading, consignment, and acquisition of securities. The Life Insurance segment is engaged in the life insurance. The other segment is engaged in the maintenance of computer-related equipment and systems, the investigation of credit and the collection of debt, among 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.

KB Financial Group, Inc. (ADR) has a Value Score of 96, which is considered to be undervalued.

KB Financial Group, Inc. (ADR)’s price-earnings ratio is 5.0 compared to the industry median at 7.6. This means that it has a lower price relative to its earnings compared to its peers. This makes KB Financial Group, Inc. (ADR) more attractive for value investors.

KB Financial Group, Inc. (ADR)’s price-to-book ratio is higher than its peers. This could make KB Financial Group, Inc. (ADR) less attractive for value investors when compared to the industry median at 0.87.

You can read more about KB 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.

Midwestone Financial Group Inc (IOWA)’s Value Grade

Value Grade:

MidWestOne Financial Group, Inc. is a bank holding company. The Company?s principal business is to serve as the holding company for its subsidiary, MidWestOne Bank (the Bank). The Bank is focused on delivering relationship-based business and personal banking products and services. The Bank provides commercial loans, real estate loans, agricultural loans, credit card loans, and consumer loans. It provides deposit products, including demand and interest checking accounts, savings accounts, money market accounts, and time deposits. The Bank?s products and services, including treasury management, Zelle, online and mobile banking, debit cards, automated teller machines, and safe deposit boxes. The Bank also has a trust department, through which it offers services, including the administration of estates, personal trusts, and conservatorships and the management of real property. It provides a range of commercial and retail lending services to businesses, individuals and government agencies.

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.

Midwestone Financial Group Inc (IOWA) has a Value Score of 93, which is considered to be undervalued.

Midwestone Financial Group Inc (IOWA)’s price-earnings ratio is 7.5 compared to the industry median at 7.6. This means that it has a lower price relative to its earnings compared to its peers. This makes Midwestone Financial Group Inc (IOWA) more attractive for value investors.

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

You can read more about Midwestone Financial Group Inc (IOWA)’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.

Renasant Corp’s Value Grade

Value Grade:

Renasant Corporation owns and operates Renasant Bank. The Company has three segments. Community Banks segment delivers a complete range of banking and financial services to individuals and small to medium-sized businesses, including checking and savings accounts, business and personal loans, asset-based lending, factoring and equipment leasing, as well as safe deposit and night depository facilities. Insurance segment includes a full-service insurance agency offering all various commercial and personal insurance through various carriers. Wealth Management segment, through the Trust division, offers a range of fiduciary services, including the administration of benefit plans, management of trust accounts, inclusive of personal and corporate benefit accounts and custodial accounts, as well as accounting and money management for trust accounts. The segment, through the Financial Services division, provides fixed and variable annuities, mutual funds and other investment 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.

Renasant Corp has a Value Score of 71, which is considered to be undervalued.

Renasant Corp’s price-earnings ratio is 8.4 compared to the industry median at 7.6. This means that it has a higher price relative to its earnings compared to its peers. This makes Renasant Corp less attractive for value investors.

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

You can read more about Renasant 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.

US Bancorp’s Value Grade

Value Grade:

U.S. Bancorp is a financial service holding company. It provides a range of financial services, including lending and depository services, cash management, capital markets, and trust and investment management services. It also engages in credit card services, merchant and automated teller machine processing, mortgage banking, insurance, brokerage and leasing. Its banking subsidiaries, U.S. Bank National Association and MUFG Union Bank, N.A., are engaged in the general banking business and offer commercial and consumer lending services, lending services, depository services and ancillary services. Its non-banking subsidiaries offer investment and insurance products to its customers principally within its domestic markets, and fund administration services to a broad range of mutual and other funds. Its lines of business are Corporate and Commercial Banking, Consumer and Business Banking, Wealth Management and Investment Services, Payment Services, and Treasury and Corporate Support.

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.

US Bancorp has a Value Score of 85, which is considered to be undervalued.

US Bancorp’s price-earnings ratio is 9.8 compared to the industry median at 7.6. This means that it has a higher price relative to its earnings compared to its peers. This makes US Bancorp less attractive for value investors.

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

You can read more about US 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.

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.

• First Financial Bancorp stock has a Value Grade of B.
• Fifth Third Bancorp stock has a Value Grade of A.
• Hanmi Financial Corp stock has a Value Grade of A.
• KB Financial Group, Inc. (ADR) stock has a Value Grade of A.
• Midwestone Financial Group Inc (IOWA) stock has a Value Grade of A.
• Renasant Corp stock has a Value Grade of B.
• US Bancorp stock has a Value Grade of A.

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 Friday, October 20
• 7 Undervalued Banks Stocks for Thursday, October 19
• Why Commerce Bancshares, Inc.’s (CBSH) Stock Is Down 5.07%
• Why Discover Financial Services’s (DFS) Stock Is Down 7.90%

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.