Over the past six months, First Busey has been a great trade, beating the S&P 500 by 9.5%. Its stock price has climbed to $26.81, representing a healthy 15.3% increase. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy First Busey, 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 Busey Not Exciting?
Despite the momentum, we don't have much confidence in First Busey. Here are three reasons we avoid BUSE and a stock we'd rather own.
1. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) represents the unit economics of a bank by measuring the profitability of its interest-bearing assets relative to its interest-bearing liabilities. It's a fundamental metric that investors use to assess lending premiums and returns.
Over the past two years, we can see that First Busey’s net interest margin averaged a subpar 3.3%, indicating the company has weak loan book economics.
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.
First Busey’s EPS grew at a weak 4.9% compounded annual growth rate over the last five years, lower than its 12.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. TBVPS Projections Show Stormy Skies Ahead
Tangible book value per share (TBVPS) growth comes from a bank’s ability to profitably lend while maintaining prudent risk management and efficient operations.
Over the next 12 months, Consensus estimates call for First Busey’s TBVPS to shrink by 3.4% to $21.92, a sour projection.
Final Judgment
First Busey 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× forward P/B (or $26.81 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.
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