Over the past six months, Fulton Financial has been a great trade, beating the S&P 500 by 18.9%. Its stock price has climbed to $21.59, representing a healthy 23.1% increase. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Fulton Financial, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Fulton Financial Not Exciting?
Despite the momentum, we don't have much confidence in Fulton Financial. Here are three reasons we avoid FULT and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees.
Regrettably, Fulton Financial’s revenue grew at a mediocre 8.9% compounded annual growth rate over the last five years. This fell short of our benchmark for the banking sector.
2. EPS Barely Growing
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.
Fulton Financial’s EPS grew at an unimpressive 6.6% compounded annual growth rate over the last five years, lower than its 8.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Projected TBVPS Growth Is Slim
Tangible book value per share (TBVPS) growth is driven by a bank’s ability to earn more than its cost of capital through lending activities while maintaining a strong balance sheet.
Over the next 12 months, Consensus estimates call for Fulton Financial’s TBVPS to grow by 9.8% to $16.60, paltry growth rate.
Final Judgment
Fulton Financial isn’t a terrible business, but it doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 1.1× forward P/B (or $21.59 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 suggest looking at a top digital advertising platform riding the creator economy.
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