First Commonwealth Financial’s 13.4% return over the past six months has outpaced the S&P 500 by 8.9%, and its stock price has climbed to $21.08 per share. This run-up might have investors contemplating their next move.
Is now the time to buy First Commonwealth Financial, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why is First Commonwealth Financial not exciting?
Despite the momentum, we’re passing on First Commonwealth Financial for now. Here are three reasons we avoid FCF, plus one stock we’d rather own.
1. Long-term revenue growth disappoints
Net interest income and fee-based revenue are the two pillars supporting bank earnings. The former captures profit from the gap between lending rates and deposit costs, while the latter encompasses charges for banking services, credit products, wealth management, and trading activities.
Over the last five years, First Commonwealth Financial grew its revenue at a tepid 7.6% compounded annual growth rate. This was below our standard for the banking sector.
2. EPS barely growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
First Commonwealth Financial’s EPS grew at a weak 4.6% compounded annual growth rate over the last five years, lower than its 7.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Substandard TBVPS growth indicates limited asset expansion
In the banking industry, tangible book value per share (TBVPS) provides the clearest picture of shareholder value, as it focuses on concrete assets while excluding intangible items that may not hold value during challenging times.
To the detriment of investors, First Commonwealth Financial’s TBVPS grew at a sluggish 5.7% annual clip over the last two years.
Final judgment
First Commonwealth Financial’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 1.4× forward P/B (or $21.08 per share). While this valuation is reasonable, 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 a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks we would buy instead of First Commonwealth Financial
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