TowneBank currently trades at $33.39 per share and has shown little upside over the past six months, posting a small loss of 4.3%. The stock also fell short of the S&P 500’s 11.2% gain during that period.
Is there a buying opportunity in TowneBank, 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 for active Edge members.
Why Is TowneBank Not Exciting?
We're cautious about TowneBank. Here are three reasons you should be careful with TOWN and a 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.
Over the last five years, TowneBank grew its revenue at a sluggish 5.1% compounded annual growth rate. This fell short of our benchmark for the banking sector.
2. Net Interest Income Points to Soft Demand
While bank 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.
TowneBank’s net interest income has grown at a 7.2% annualized rate over the last five years, worse than the broader banking industry. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.
3. Projected TBVPS Growth Is Slim
A bank’s tangible book value per share (TBVPS) increases when it generates higher net interest margins and keeps credit losses low, allowing it to compound shareholder value over time.
Over the next 12 months, Consensus estimates call for TowneBank’s TBVPS to grow by 2.3% to $22.41, inadequate growth rate.
Final Judgment
TowneBank isn’t a terrible business, but it doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 1.1× forward P/B (or $33.39 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. Let us point you toward one of our all-time favorite software stocks.
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