Over the last six months, Pinnacle Financial Partners’s shares have sunk to $86.65, producing a disappointing 11.4% loss - a stark contrast to the S&P 500’s 3.1% gain. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Pinnacle Financial Partners, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Pinnacle Financial Partners Not Exciting?
Even with the cheaper entry price, we're swiping left on Pinnacle Financial Partners for now. Here are three reasons we avoid PNFP and a stock we'd rather own.
1. Low Net Interest Margin Reveals Weak Loan Book Profitability
The net interest margin (NIM) is a key profitability indicator that measures the difference between what a bank earns on its loans and what it pays on its deposits. This metric measures how efficiently one can generate income from its core lending activities.
Over the past two years, we can see that Pinnacle Financial Partners’s net interest margin averaged a subpar 3.2%. This metric is well below other banks, signaling its loans aren’t very profitable.
2. Projected TBVPS Growth Is Slim
Tangible book value per share (TBVPS) growth comes from a bank’s ability to profitably lend while maintaining prudent risk management and efficient operations.
Over the next 12 months, Consensus estimates call for Pinnacle Financial Partners’s TBVPS to grow by 2.5% to $65.75, lousy growth rate.
Final Judgment
Pinnacle Financial Partners isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 0.9× forward P/B (or $86.65 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
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