TowneBank currently trades at $36.27 per share and has shown little upside over the past six months, posting a middling return of 3.1%. The stock also fell short of the S&P 500’s 9% gain during that period.
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Why Is TowneBank Not Exciting?
We’re swiping left on TowneBank for now. Here are three reasons you should be careful with TOWN, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income.
Regrettably, TowneBank’s revenue grew at a sluggish 5.2% compounded annual growth rate over the last five years. This was below our standard for the banking sector.
3. Substandard TBVPS Growth Indicates Limited Asset Expansion
For banks, tangible book value per share (TBVPS) is a crucial metric that measures the actual value of shareholders’ equity, stripping out goodwill and other intangible assets that may not be recoverable in a worst-case scenario.
To the detriment of investors, TowneBank’s TBVPS grew at a sluggish 4% annual clip over the last two years.
Final Judgment
TowneBank’s business quality ultimately falls short of our standards. With its shares lagging the market recently, the stock trades at 1.1× forward P/B (or $36.27 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. 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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