Banks serve as the backbone of the economy, facilitating lending, deposits, and financial services that keep businesses and consumers moving forward. But worries about an economic slowdown and potential credit deterioration have kept sentiment in check, and over the past six months, the banking industry’s 6.1% return has trailed the S&P 500 by 4.6 percentage points.
A cautious approach is imperative when dabbling in banks as many are sensitive to interest rate changes and economic cycles. With that said, here are three bank stocks that may face trouble.
WSFS Financial (WSFS)
Market Cap: $4.01 billion
Founded in 1832 as Wilmington Savings Fund Society and one of the oldest banks in America still operating under its original name, WSFS Financial (NASDAQ:WSFS) operates a community banking and wealth management franchise primarily serving customers in the Mid-Atlantic region through its main subsidiary, WSFS Bank.
Why Are We Wary of WSFS?
- Sales trends were unexciting over the last two years as its 4.1% annual growth was below the typical banking company
- Estimated net interest income growth of 5.3% for the next 12 months implies demand will slow from its five-year trend
- Annual earnings per share growth of 2.1% underperformed its revenue over the last five years, showing its incremental sales were less profitable
WSFS Financial’s stock price of $78.56 implies a valuation ratio of 1.4x forward P/B. Check out our free in-depth research report to learn more about why WSFS doesn’t pass our bar.
Peoples Bancorp (PEBO)
Market Cap: $1.40 billion
Founded in 1902 in Ohio and expanding through both organic growth and acquisitions, Peoples Bancorp (NASDAQ:PEBO) is a financial holding company that provides banking, insurance, equipment leasing, and investment services to consumers and businesses.
Why Do We Think PEBO Will Underperform?
- 2.4% annual revenue growth over the last two years was slower than its banking peers
- Incremental sales over the last five years were less profitable as its 1.1% annual earnings per share growth lagged its revenue gains
- Estimated tangible book value per share growth of 5.5% for the next 12 months implies profitability will slow from its two-year trend
Peoples Bancorp is trading at $39.55 per share, or 1.1x forward P/B. To fully understand why you should be careful with PEBO, check out our full research report (it’s free).
TFS Financial (TFSL)
Market Cap: $4.96 billion
Tracing its roots back to 1938 during the Great Depression era when savings and loans were vital to homeownership, TFS Financial (NASDAQ:TFSL) is a savings and loan holding company that provides mortgage lending, deposit services, and other retail banking products primarily in Ohio and Florida.
Why Is TFSL Risky?
- 6.8% annual net interest income growth over the last five years was slower than its banking peers
- Inferior net interest margin of 1.8% means it must compensate for lower profitability through increased loan originations
- Estimated tangible book value per share for the next 12 months is flat and implies a softer backdrop
At $17.80 per share, TFS Financial trades at 2.5x forward P/B. Read our free research report to see why you should think twice about including TFSL in your portfolio.
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