Over the past six months, National Bank Holdings’s stock price fell to $35.85. Shareholders have lost 16.9% of their capital, which is disappointing considering the S&P 500 has climbed by 1.1%. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy National Bank Holdings, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Even with the cheaper entry price, we don’t have much confidence in National Bank Holdings. Here are three reasons why there are better opportunities than NBHC and a stock we’d rather own.
Long-term growth is the most important, but within financials, a stretched historical view may miss recent interest rate changes and market returns. National Bank Holdings’s recent performance shows its demand has slowed as its annualized revenue growth of 3.8% over the last two years was below its five-year trend.
Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.
Markets understand that a bank’s expense base depends on its revenue mix and what mostly drives share price performance is the change in this ratio, rather than its absolute value. It’s somewhat counterintuitive, but a lower efficiency ratio is better.
For the next 12 months, Wall Street expects National Bank Holdings to become less profitable as it anticipates an efficiency ratio of 61.1% compared to 59% over the past year.
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, National Bank Holdings’s TBVPS grew at a mediocre 9.2% annual clip over the last two years.
National Bank Holdings isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 1× forward P/B (or $35.85 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We’re pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most dominant software business in the world.
