Although TowneBank (currently trading at $33.54 per share) has gained 7.9% over the last six months, it has trailed the S&P 500’s 21.1% return during that period. This may have investors wondering how to approach the situation.
Is now the time to buy TowneBank, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is TowneBank Not Exciting?
We're swiping left on TowneBank for now. Here are three reasons you should be careful with TOWN and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
TowneBank’s net interest income has grown at a 7.1% annualized rate over the last five years, slightly worse than the broader banking industry. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.
3. TBVPS Projections Show Stormy Skies Ahead
The key to tangible book value per share (TBVPS) growth is a bank’s ability to earn consistent returns on its assets that exceed its funding costs and credit losses.
Over the next 12 months, Consensus estimates call for TowneBank’s TBVPS to shrink by 3.5% to $21.52, a sour projection.
Final Judgment
TowneBank’s business quality ultimately falls short of our standards. With its shares underperforming the market lately, the stock trades at 1.1× forward P/B (or $33.54 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of our top software and edge computing picks.
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