Is Meridian Bancorp Inc (NASDAQ:EBSB) A Strong Financials Bet?
Meridian Bancorp Inc (NASDAQ:EBSB), a US$869.1m small-cap, is a financial services company operating in an industry, whose growth is generally driven by economic condition, determining the rate of interest and inflation. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 26.7% in the upcoming year , and an optimistic near-term growth of 26.1% over the next couple of years. However, this rate came in below the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, as well as evaluate whether Meridian Bancorp is lagging or leading in the industry.
See our latest analysis for Meridian Bancorp
What’s the catalyst for Meridian Bancorp’s sector growth?
The mortgage industry is characterized by stable product offerings, consolidation and increasing levels of external competition. In the past year, the industry delivered growth of 9.4%, though still underperforming the wider US stock market. Meridian Bancorp leads the pack with its impressive earnings growth of 16.9% over the past year. However, analysts are expecting its future earnings growth to be more in-line with the industry average, hovering at 25.6% over the next couple of years.
Is Meridian Bancorp and the sector relatively cheap?
The mortgage and thrifts sector’s PE is currently hovering around 19.42x, in-line with the US stock market PE of 19.84x. 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 6.5% compared to the market’s 10.6%, potentially indicative of past headwinds. On the stock-level, Meridian Bancorp is trading at a PE ratio of 19.01x, which is relatively in-line with the average mortgage and thrifts stock. In terms of returns, Meridian Bancorp generated 7.3% in the past year, in-line with its industry average.
Next Steps:
If Meridian Bancorp has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a mortgage and thrifts industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. 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 Meridian 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 EBSB’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 Meridian 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 editorial-team@simplywallst.com.
