Sandy Spring Bancorp Inc (NASDAQ:SASR), a US$1.40b 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 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. Today, I will analyse the industry outlook, and also determine whether Sandy Spring Bancorp is a laggard or leader relative to its financial sector peers.
What’s the catalyst for Sandy Spring 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. Over the past year, the industry saw growth in the teens, though still underperforming the wider US stock market. Sandy Spring Bancorp leads the pack with its impressive earnings growth of 22.56% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Sandy Spring Bancorp poised to deliver a 59.98% growth over the next couple of years compared to the industry’s 23.51%. This growth may make Sandy Spring Bancorp a more expensive stock relative to its peers.
Is Sandy Spring Bancorp and the sector relatively cheap?
Banking companies are typically trading at a PE of 16.17x, relatively similar to the rest of the US stock market PE of 18.05x. 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 8.84% compared to the market’s 11.40%, potentially indicative of past headwinds. On the stock-level, Sandy Spring Bancorp is trading at a PE ratio of 16.83x, which is relatively in-line with the average banking stock. In terms of returns, Sandy Spring Bancorp generated 6.76% in the past year, which is 2.07% below the banking sector.
Sandy Spring 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 Sandy Spring 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 Sandy Spring 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 SASR’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 Sandy Spring 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 firstname.lastname@example.org.