Horizon Bancorp Inc (NASDAQ:HBNC), a US$797.94m small-cap, operates in the banking industry, which has recently been facing serious existential threats resulting from potential disintermediation and disruption from new technology. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 23.51% in the upcoming year , and an enormous growth of 33.65% over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Horizon Bancorp is a laggard or leader relative to its financial sector peers.
What’s the catalyst for Horizon Bancorp’s sector growth?
The threat of disintermediation in the payments industry is both real and imminent, taking profits away from traditional incumbent financial institutions. In the past year, the industry delivered growth in the teens, though still underperforming the wider US stock market. Horizon Bancorp leads the pack with its impressive earnings growth of 44.88% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Horizon Bancorp poised to deliver a 38.14% growth over the next couple of years compared to the industry’s 23.51%. This growth may make Horizon Bancorp a more expensive stock relative to its peers.
Is Horizon Bancorp and the sector relatively cheap?
The banking industry is trading at a PE ratio of 16.17x, relatively similar to the rest of the US stock market PE of 18.05x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 8.84% compared to the market’s 11.40%, potentially indicative of past headwinds. On the stock-level, Horizon Bancorp is trading at a PE ratio of 17.88x, which is relatively in-line with the average banking stock. In terms of returns, Horizon Bancorp generated 9.08% in the past year, in-line with its industry average.
Horizon Bancorp’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given the stock is trading in-line with its peers. If Horizon Bancorp has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at Horizon Bancorp’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has HBNC’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Horizon Bancorp? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past 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. For errors that warrant correction please contact the editor at email@example.com.