SPECIAL REPORT The Top 7 Stocks for 2024

3 Underperforming Bank Stocks You Better Not Be Buying

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  • Avoid these underperforming bank stocks in the wake of recent financial turbulences
  • PacWest Bancorp (PACW): Plagued by a 66% stock value drop and a disappointing merger with Banc of California, PacWest’s stock is a remarkably unattractive bet.
  • NewtekOne (NEWT): NewtekOne’s dismal journey is marked by slashed EPS guidance, reflected in its stock plummeting 16% YTD and over 37% in five years.
  • IF Bancorp (IROQ): Struggling IF Bancorp’s unimpressive first quarter results and a 23.6% sales plunge highlight investor skepticism, exasperated by an inflated valuation of over 11.4 times TTM cash flows.
underperforming bank stocks - 3 Underperforming Bank Stocks You Better Not Be Buying

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Underperforming bank stocks are casting a shadow over the U.S. financial landscape on the back of diminished investor confidence, shaken by the March banking crisis. The banking sector, still reeling from the Silicon Valley Bank collapse and struggles of smaller lenders, has yet to see the same benefits of rising interest rates.

This bleak scenario underscores how the industry has struggled to bounce back from the 2008 financial crisis, hampered by waves of multiple new regulations and low returns. Consequently, it’s imperative to avoid investing in underperforming stocks that offer little upside potential ahead of a bullish rally.

PacWest Bancorp (PACW)

Person holding mobile phone with logo of American banking company PacWest Bancorp (PACW) on screen in front of business web page. Focus on phone display. Unmodified photo
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PacWest Bancorp (NASDAQ:PACW) took a major hit following the regional banking crisis. It prompted a merger with Banc of California, which offers little assurance to investors. Despite the deal’s initial appearance of a premium value, it was a substantial discount to PACW stock’s closing price before the announcement, resulting in investor withdrawal. Moreover, both PACW and BANC stocks face further declines potentially, making this not just a bad trade option but a risky investment overall, with the downside risk overshadowing any upside potential.

PacWest released its third quarter results in October, with its EPS of a negative 31 cents, missing estimates by 31 cents. Moreover, its revenues are $174.5 million, a 53.3% drop year-over-year. PACW stock has shed over 66% of its value on its lackluster performance and unattractive merger scenario. Though some may think of it as an enticing wager at this point, trading at just 1.1 times forward sales, it’s best to avoid it with a ten-foot pole.

NewtekOne (NEWT)

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NewtekOne (NASDAQ:NEWT), a financial services provider to small and medium-sized businesses, has been reeling under the pressures exerted by its business environment. Since its inception in 2013, NewtekOne’s journey has been fraught with challenges. The company’s recent third quarter earnings report reflects a downward trajectory, with full-year 2023 EPS guidance slashed to a lackluster $1.60 to $1.80, falling short of both previous estimates and analyst expectations. The outlook for 2024 isn’t much brighter, as forecasts remain significantly behind market predictions.

Moreover, though the third quarter saw a marginal EPS improvement and a slight increase in net interest income, these pale compared to the decrease in total assets, from $1.44 billion to $1.38 billion. The stock’s performance mirrors this gloom, plummeting 16% year-to-date and over 37% across five years. This paints a grim picture of a company battling significant headwinds, struggling to regain investor confidence.

IF Bancorp (IROQ)

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IF Bancorp (NASDAQ:IROQ), a bank holding company with a subsidiary functioning as a federally chartered savings association, is struggling to gain momentum in the current financial spectrum. The company has failed to capture investor interest despite offering a range of services, including deposit accounts, loans, and property and casualty insurance, mainly to individuals, families, and businesses. This lack of traction is evident in its latest financial performance.

Moreover, the firm’s first quarter GAAP EPS of 14 cents does little to instill confidence, especially considering the massive 23.6% year-over-year drop in sales to $5.71 million. These figures reflect a broader trend of investor skepticism and market-related challenges faced by regional banks. IF Bancorp’s inability to navigate the turbulent banking sector effectively has led to its underwhelming performance, while its stock trades at a nosebleed valuation of more than 11.4 times trailing twelve-month cash flows.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.


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