Hope Bancorp’s 22.7% return over the past six months has outpaced the S&P 500 by 5.8%, and its stock price has climbed to $13.72 per share. This performance may have investors wondering how to approach the situation.
Is now the time to buy Hope Bancorp, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Hope Bancorp Will Underperform?
We’re happy investors have made money, but we’re sitting this one out for now. Here are three reasons you should be careful with HOPE, plus one stock we’d rather own.
1. Net Interest Income Hits a Plateau
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
Hope Bancorp’s net interest income was flat over the last five years, much worse than the broader banking industry and in line with its total revenue. This was driven by its flat loan book as its net interest margin, which represents how much a bank earns in relation to its outstanding loans, decreased throughout that period.
2. EPS Trending Down
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.
Sadly for Hope Bancorp, its EPS declined by 4.1% annually over the last five years while its revenue grew by 1.7%. This tells us the company became less profitable on a per-share basis as it expanded.
3. TBVPS Has Plateaued, Reflecting Stagnating Assets
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, Hope Bancorp’s TBVPS was flat over the last two years.
Final Judgment
We cheer for all companies supporting the economy, but in the case of Hope Bancorp, we’ll be cheering from the sidelines. With its shares beating the market recently, the stock trades at 0.7× forward P/B (or $13.72 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d suggest looking at the most dominant software business in the world.
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