What a time it’s been for Merchants Bancorp. In the past six months alone, the company’s stock price has increased by a massive 48.1%, setting a new 52-week high of $49.95 per share. This performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Merchants Bancorp, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Merchants Bancorp Not Exciting?
Despite the momentum, we’re cautious about Merchants Bancorp. Here are three reasons why MBIN doesn’t excite us, plus one stock we’d rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within financials, a stretched historical view may miss recent interest rate changes and market returns. Merchants Bancorp’s recent performance shows its demand has slowed as its annualized revenue growth of 7.4% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
Note: Quarters not shown were determined to be outliers because they were impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.
Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.
This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.
New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.
Over the last two years, Merchants Bancorp has averaged a Tier 1 capital ratio of 9.3%, which is considered unsafe in the event of a black swan or if macro or market conditions suddenly deteriorate. For this reason alone, we will be crossing it off our shopping list.
Final Judgment
Merchants Bancorp isn’t a terrible business, but it doesn’t pass our quality test. Following the recent surge, the stock trades at 1.1× forward P/B (or $49.95 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. Let us point you toward a dominant aerospace business that has perfected its M&A strategy.
Stocks We Like More Than Merchants Bancorp
ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.
Find out which 5 stocks it’s flagging this month — FREE. Get Our Top 5 Growth Stocks for Free HERE.
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.
