Based on key financial metrics such as the price-to-sales ratio, shareholder yield and the price-earnings ratio, the following 6 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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6 Undervalued Banks Stocks

Of course, there are countless value stocks that are worth mentioning, but this is a concise list of the top 6 undervalued stocks in the Banks industry for Thursday, October 26, 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.

BankFinancial Corp’s Value Grade

Value Grade:

BankFinancial Corporation is the bank holding company for BankFinancial, National Association (the Bank). The Bank is a full-service, national bank providing banking, wealth management and fiduciary services to individuals, families and businesses in the Chicago metropolitan area and on a regional or national basis for commercial finance, healthcare finance, equipment finance, commercial real estate finance and treasury management business customers. The Bank offers its customers a range of loan, deposit, trust and other financial products and services through approximately 20 full-service banking offices located in Cook, DuPage, Lake and Will Counties, Illinois, and through its Internet branch, www.bankfinancial.com. The Bank also offers a range of financial products and services that are related to loans and deposits, including cash management, funds transfers, bill payment and mobile banking transactions, trust services, wealth management, and general insurance agency 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.

BankFinancial Corp has a Value Score of 79, which is considered to be undervalued.

When you look at BankFinancial Corp’s price-to-sales ratio at 1.68 compared to the industry median at 1.84, this company has a lower price relative to revenue compared to its peers. This could make BankFinancial Corp’s stock more attractive for value investors.

BankFinancial Corp’s price-earnings ratio is 9.32 compared to the industry median at 7.52. This means it has a higher share price relative to earnings compared to its peers. This could make BankFinancial Corp less attractive for value investors.

Now, let’s assess BankFinancial Corp’s EV/EBITDA ratio, also known as enterprise multiple. At 5.8, when compared to the industry median of 5.3, 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. BankFinancial Corp’s shareholder yield is higher than its industry median ratio of 4.32%. 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. BankFinancial Corp’s price-to-book ratio is lower than its industry median ratio of 0.85. This could make BankFinancial Corp more attractive to investors looking for a new addition to their portfolio.

Lastly, let’s take a look at BankFinancial Corp’s price-to-free-cash-flow ratio (P/FCF), which can indicate a company’s market value relative to its operating cash flow. BankFinancial Corp’s price-to-free-cash-flow ratio is higher than its industry median ratio of 7.57. This could make BankFinancial Corp less attractive because the higher P/FCF ratio indicates that BankFinancial Corp 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.

Dime Community Bancshares Inc’s Value Grade

Value Grade:

Dime Community Bancshares, Inc. is a bank holding company. The Company is engaged in providing commercial banking and financial services through its wholly owned subsidiary, Dime Community Bank (the Bank). It is engaged in providing full-service commercial and consumer banking services, including accepting time, savings and demand deposits from the businesses, consumers, and local municipalities. It also offers the Certificate of Deposit Account Registry Service (CDARS) and Insured Cash Sweep (ICS) programs. In addition, it offers merchant credit and debit card processing, automated teller machines, cash management services, lockbox processing, online banking services, remote deposit capture, safe deposit boxes, and individual retirement accounts as well as investment services through Dime Financial Services LLC. Through its title insurance subsidiary, the Bank acts as a broker for title insurance services. It operates 59 branch locations throughout Long Island and the 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.

Dime Community Bancshares Inc has a Value Score of 97, which is considered to be undervalued.

Dime Community Bancshares Inc’s price-earnings ratio is 4.7 compared to the industry median at 7.5. This means that it has a lower price relative to its earnings compared to its peers. This makes Dime Community Bancshares Inc more attractive for value investors.

Dime Community Bancshares Inc’s price-to-book ratio is higher than its peers. This could make Dime Community Bancshares Inc less attractive for value investors when compared to the industry median at 0.85.

You can read more about Dime Community 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.

Horizon Bancorp Inc’s Value Grade

Value Grade:

Horizon Bancorp, Inc. is a bank holding company. The Company provides a range of banking services in northern and central Indiana and southern and central Michigan through its subsidiary, Horizon Bank (the Bank) and Horizon Risk Management, Inc. The Company operates through the commercial banking segment. The Bank is a full-service commercial bank that offers a range of commercial and retail banking and other services incident to banking along with a trust department that offers corporate and individual trust and agency services and investment management services. The Bank maintains approximately 71 full-service offices. Its wholly owned subsidiary, Horizon Risk Management, Inc., is a captive insurance company. Its loan portfolio consists of commercial loans, real estate loans, mortgage warehouse loans and consumer loans. The Bank?s deposits products include noninterest-bearing demand deposits, interest bearing demand deposits, savings deposits, money market and time deposits.

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.

Horizon Bancorp Inc has a Value Score of 82, which is considered to be undervalued.

Horizon Bancorp Inc’s price-earnings ratio is 5.2 compared to the industry median at 7.5. This means that it has a lower price relative to its earnings compared to its peers. This makes Horizon Bancorp Inc more attractive for value investors.

Horizon Bancorp Inc’s price-to-book ratio is higher than its peers. This could make Horizon Bancorp Inc less attractive for value investors when compared to the industry median at 0.85.

You can read more about Horizon 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.

Meridian Corp’s Value Grade

Value Grade:

Meridian Corporation is a bank holding company. The Company is engaged in banking activities through its wholly owned subsidiary, Meridian Bank (the Bank), a full-service, state-chartered commercial bank. The Company has a financial services business model with non-interest income streams from mortgage lending, small business administration?s (SBA) lending and wealth management services. The Company's segments include Banking, Wealth Management and Mortgage Banking. Its Banking segment consists of commercial and retail banking. The Wealth Management segment provides a range of wealth management services and products and guidance to help its clients and its banking customers prepare for the future. The Mortgage Banking segment consists of 12 loan production offices throughout suburban Philadelphia and Maryland. The Mortgage Banking segment originates one to four family residential mortgages and sells nearly all of its production to third party investors.

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.

Meridian Corp has a Value Score of 90, which is considered to be undervalued.

Meridian Corp’s price-earnings ratio is 5.8 compared to the industry median at 7.5. This means that it has a lower price relative to its earnings compared to its peers. This makes Meridian Corp more attractive for value investors.

Meridian Corp’s price-to-book ratio is higher than its peers. This could make Meridian Corp less attractive for value investors when compared to the industry median at 0.85.

You can read more about Meridian 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.

Sandy Spring Bancorp Inc’s Value Grade

Value Grade:

Sandy Spring Bancorp, Inc. is the bank holding company for Sandy Spring Bank (the Bank). The Company operates through two segments: Community Banking and Investment Management. The Company's Community Banking segment operates through Sandy Spring Bank and involves delivering a range of financial products and services, including various loan and deposit products, to both individuals and businesses. The Investment Management segment operates through West Financial Services, Inc. and Rembert Pendleton Jackson (RPJ), a subsidiary of the Bank, which provides investment management and financial planning services to individuals, families, small businesses and associations, including cash flow analysis, investment review, tax planning, retirement planning, insurance analysis and estate planning. The Bank offers a range of commercial and retail banking, mortgage, private banking and trust services at over 50 locations throughout central Maryland, northern Virginia, and Washington D.C.

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.

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

Sandy Spring Bancorp Inc’s price-earnings ratio is 6.8 compared to the industry median at 7.5. This means that it has a lower price relative to its earnings compared to its peers. This makes Sandy Spring Bancorp Inc more attractive for value investors.

Sandy Spring Bancorp Inc’s price-to-book ratio is higher than its peers. This could make Sandy Spring Bancorp Inc less attractive for value investors when compared to the industry median at 0.85.

You can read more about Sandy Spring 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.

Waterstone Financial Inc’s Value Grade

Value Grade:

Waterstone Financial, Inc. is a savings and loan holding company for WaterStone Bank SSB (the Bank). The Bank offers a full suite of personal and business banking products. It conducts its community banking business from 14 banking offices located in Milwaukee, Washington, and Waukesha counties, Wisconsin. The Bank's principal lending activity is originating one-to-four-family, multi-family residential, and commercial real estate loans for retention in its portfolio. It also offers home equity loans and lines of credit, construction and land loans, commercial business loans, and consumer loans. The Bank funds its loan production primarily with retail deposits and Federal Home Loan Bank advances. Its deposit offerings include certificates of deposit, money market savings accounts, transaction deposit accounts, and noninterest-bearing demand accounts. Its investment securities portfolio is comprised of mortgage-backed securities, collateralized mortgage obligations, and more.

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.

Waterstone Financial Inc has a Value Score of 71, which is considered to be undervalued.

Waterstone Financial Inc’s price-earnings ratio is 16.8 compared to the industry median at 7.5. This means that it has a higher price relative to its earnings compared to its peers. This makes Waterstone Financial Inc less attractive for value investors.

Waterstone Financial Inc’s price-to-book ratio is higher than its peers. This could make Waterstone Financial Inc less attractive for value investors when compared to the industry median at 0.85.

You can read more about Waterstone Financial 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 6 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.

• BankFinancial Corp stock has a Value Grade of B.
• Dime Community Bancshares Inc stock has a Value Grade of A.
• Horizon Bancorp Inc stock has a Value Grade of A.
• Meridian Corp stock has a Value Grade of A.
• Sandy Spring Bancorp Inc stock has a Value Grade of A.
• Waterstone Financial Inc stock has a Value Grade of B.

Now that you have a bit more background about each of the 6 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.

• 6 Undervalued Banks Stocks for Thursday, October 26
• 7 Undervalued Banks Stocks for Wednesday, October 25
• Large Banks May Be Poised for Success in Today's Market
• Why Arrow Financial Corporation’s (AROW) Stock Is Up 9.57%

AAII Disclaimer

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