Over the past six months, National Bank Holdings has been a great trade, beating the S&P 500 by 10.1%. Its stock price has climbed to $44.39, representing a healthy 16.2% increase. This performance may have investors wondering how to approach the situation.
Is there a buying opportunity in National Bank Holdings, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is National Bank Holdings Not Exciting?
We’re glad investors have benefited from the price increase, but we’re sitting this one out for now. Here are three reasons you should be careful with NBHC, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
From lending activities to service fees, most banks build their revenue model around two income sources. Interest rate spreads between loans and deposits create the first stream, with the second coming from charges on everything from basic bank accounts to complex investment banking transactions.
Regrettably, National Bank Holdings’s revenue grew at a sluggish 5.2% compounded annual growth rate over the last five years. This was below our standard for the banking sector.
2. EPS Growth Has Stalled
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
National Bank Holdings’s flat EPS over the last five years was below its 5.2% 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
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.
Disappointingly for investors, National Bank Holdings’s TBVPS grew at a sluggish 5.7% annual clip over the last two years.
Final Judgment
National Bank Holdings’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 1.1× forward P/B (or $44.39 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
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