Independent Bank Corporation (NASDAQ:IBCP), a US$589m 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 highly optimistic growth of 40% in the upcoming year , and a whopping growth of 56% over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Today, I’ll take you through the sector growth expectations, and also determine whether Independent Bank is a laggard or leader relative to its financial sector peers.
What’s the catalyst for Independent Bank’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 previous year, the industry saw growth in the teens, though still underperforming the wider US stock market. Independent Bank is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 10% in the prior year. However, analysts are expecting the company to accelerate ahead of its peers over the next year, and deliver a 71% growth next year. This growth may make Independent Bank a more expensive stock relative to its peers.
Is Independent Bank and the sector relatively cheap?
The banking sector’s PE is currently hovering around 17.83x, relatively similar to the rest of the US stock market PE of 20.13x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 8.1% compared to the market’s 10%, potentially indicative of past headwinds. On the stock-level, Independent Bank is trading at a PE ratio of 20.44x, which is relatively in-line with the average banking stock. In terms of returns, Independent Bank generated 7.9% in the past year, in-line with its industry average.
Independent Bank’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 Independent Bank 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 Independent Bank’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 IBCP’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 Independent Bank? 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 firstname.lastname@example.org.