Over the past six months, TFS Financial has been a great trade, beating the S&P 500 by 17.6%. Its stock price has climbed to $17.87, representing a healthy 26.3% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy TFS Financial, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think TFS Financial Will Underperform?
Despite the momentum, we’re sitting this one out for now. Here are three reasons why there are better opportunities than TFSL, plus one stock we’d rather own.
1. Net Interest Income Points to Soft Demand
While banks generate revenue from multiple sources, investors view net interest income as a cornerstone — its predictable, recurring characteristics stand in sharp contrast to the volatility of one-time fees.
TFS Financial’s net interest income has grown at a 3.9% annualized rate over the last five years, much worse than the broader banking industry. This was driven by its loan growth as its net interest margin, which represents how much a bank earns in relation to its outstanding loan book, declined throughout that period.
2. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) represents the unit economics of a bank by measuring the profitability of its interest-bearing assets relative to its interest-bearing liabilities. It’s a fundamental metric that investors use to assess lending premiums and returns.
Over the past two years, we can see that TFS Financial’s net interest margin averaged a poor 1.7%, reflecting its high servicing and capital costs.
3. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
TFS Financial’s weak 2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
TFS Financial falls short of our quality standards. With its shares outperforming the market lately, the stock trades at 2.6× forward P/B (or $17.87 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at the most entrenched endpoint security platform on the market.
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