TowneBank trades at $35.35 per share and has stayed right on track with the overall market, gaining 5.2% over the last six months. At the same time, the S&P 500 has returned 3.1%.
Is now the time to buy TowneBank, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is TowneBank Not Exciting?
We're swiping left on TowneBank for now. Here are three reasons there are better opportunities than TOWN and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Net interest income and 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, TowneBank grew its revenue at a sluggish 5.1% compounded annual growth rate. This was below our standard for the banking sector.
2. Net Interest Income Points to Soft Demand
Our experience and research show the market cares primarily about a bank’s net interest income growth as one-time fees are considered a lower-quality and non-recurring revenue source.
TowneBank’s net interest income has grown at a 9.9% annualized rate over the last five years, slightly 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
The key to tangible book value per share (TBVPS) growth is a bank’s ability to earn consistent returns on its assets that exceed its funding costs and credit losses.
Over the next 12 months, Consensus estimates call for TowneBank’s TBVPS to grow by 1.1% to $22.14, inadequate growth rate.
Final Judgment
TowneBank isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 1.2× forward P/B (or $35.35 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
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