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Does Territorial Bancorp Inc’s (NASDAQ:TBNK) PE Ratio Signal A Buying Opportunity?

Thomas Auclair

Territorial Bancorp Inc (NASDAQ:TBNK) is currently trading at a trailing P/E of 16.4x, which is lower than the industry average of 22.6x. While this makes TBNK appear like a great stock to buy, you might change your mind after I explain the assumptions behind the P/E ratio. Today, I will break down what the P/E ratio is, how to interpret it and what to watch out for. Check out our latest analysis for Territorial Bancorp

Breaking down the P/E ratio

NasdaqGS:TBNK PE PEG Gauge Dec 22nd 17
NasdaqGS:TBNK PE PEG Gauge Dec 22nd 17

A common ratio used for relative valuation is the P/E ratio. By comparing a stock’s price per share to its earnings per share, we are able to see how much investors are paying for each dollar of the company’s earnings.

P/E Calculation for TBNK

Price-Earnings Ratio = Price per share ÷ Earnings per share

TBNK Price-Earnings Ratio = $30.77 ÷ $1.872 = 16.4x

The P/E ratio itself doesn’t tell you a lot; however, it becomes very insightful when you compare it with other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to TBNK, such as company lifetime and products sold. A common peer group is companies that exist in the same industry, which is what I use. Since TBNK’s P/E of 16.4x is lower than its industry peers (22.6x), it means that investors are paying less than they should for each dollar of TBNK’s earnings. As such, our analysis shows that TBNK represents an under-priced stock.

Assumptions to watch out for

While our conclusion might prompt you to buy TBNK immediately, there are two important assumptions you should be aware of. The first is that our “similar companies” are actually similar to TBNK, or else the difference in P/E might be a result of other factors. For example, if you are comparing lower risk firms with TBNK, then its P/E would naturally be lower than its peers, as investors would value those with lower risk at a higher price. The second assumption that must hold true is that the stocks we are comparing TBNK to are fairly valued by the market. If this does not hold, there is a possibility that TBNK’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

Are you a shareholder? You may have already conducted fundamental analysis on the stock as a shareholder, so its current undervaluation could signal a good buying opportunity to increase your exposure to TBNK. Now that you understand the ins and outs of the PE metric, you should know to bear in mind its limitations before you make an investment decision.

Are you a potential investor? If you are considering investing in TBNK, basing your decision on the PE metric at one point in time is certainly not sufficient. I recommend you do additional analysis by looking at its intrinsic valuation and using other relative valuation ratios like PEG or EV/EBITDA.

PE is one aspect of your portfolio construction to consider when holding or entering into a stock. But it is certainly not the only factor. Take a look at our most recent infographic report on Territorial Bancorp for a more in-depth analysis of the stock to help you make a well-informed investment decision. Since we know a limitation of PE is it doesn’t properly account for growth, you can use our free platform to see my list of stocks with a high growth potential and see if their PE is still reasonable.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.