Over the past six months, Seacoast Banking’s shares (currently trading at $25.77) have posted a disappointing 6.9% loss while the S&P 500 was flat. This might have investors contemplating their next move.
Is there a buying opportunity in Seacoast Banking, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Seacoast Banking Not Exciting?
Even with the cheaper entry price, we don't have much confidence in Seacoast Banking. Here are three reasons why SBCF doesn't excite us and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within financials, a stretched historical view may miss recent interest rate changes, market returns, and industry trends. Seacoast Banking’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.6% over the last two years was well below its five-year trend. 
2. EPS Growth Has Stalled
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Seacoast Banking’s flat EPS over the last five years was below its 11.7% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. High Interest Expenses Increase Risk
Leverage is core to the bank’s business model (loans funded by deposits) and to ensure their stability, regulators require certain levels of capital and liquidity, focusing on a bank’s Tier 1 capital ratio.
Tier 1 capital is the highest-quality capital that a bank 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 banks 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, banks generally must maintain a 7-10% ratio at minimum.
Over the last two years, Seacoast Banking has averaged a Tier 1 capital ratio of 14.5%, 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
Seacoast Banking isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 1× forward P/B (or $25.77 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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