Westamerica Bancorporation (NASDAQ:WABC), a US$1.6b small-cap, is a bank operating in an 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 highly optimistic growth of 40% in the upcoming year , and a massive growth of 57% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Today, I’ll take you through the sector growth expectations, as well as evaluate whether Westamerica Bancorporation is lagging or leading in the industry.
What’s the catalyst for Westamerica Bancorporation’s sector growth?
The threat of disintermediation in the payments industry is both real and imminent, taking profits away from traditional incumbent financial institutions. Over the past year, the industry saw growth in the teens, though still underperforming the wider US stock market. Westamerica Bancorporation lags the pack with its negative growth rate of -10% over the past year, which indicates the company has been growing at a slower pace than its banking peers. However, in the upcoming year, Westamerica Bancorporation is expected to deliver growth in-line with its industry peers, at a growth rate of 40%.
Is Westamerica Bancorporation and the sector relatively cheap?
The banking industry is trading at a PE ratio of 17.48x, relatively similar to the rest of the US stock market PE of 20.28x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 8.1% compared to the market’s 10%, potentially indicative of past headwinds. On the stock-level, Westamerica Bancorporation is trading at a higher PE ratio of 28.67x, making it more expensive than the average banking stock. In terms of returns, Westamerica Bancorporation generated 9.3% in the past year, which is 1.2% over the banking sector.
Westamerica Bancorporation is banking industry laggard in terms of its future growth outlook. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis.If Westamerica Bancorporation has been on your watchlist for a while, now may not be the best time to enter into the stock. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the financial sector. However, before you make a decision on the stock, I suggest you look at Westamerica Bancorporation’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 WABC’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 Westamerica Bancorporation? 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.