Severn Bancorp Inc (SVBI): How Much Growth Is Left In Financials?
Severn Bancorp Inc (NASDAQ:SVBI), a USD$86.94M small-cap, is a financial services company operating in an industry, which is impacted by macroeconomic factors such as interest rate changes and inflation. Financial services analysts are forecasting for the entire industry, a fairly unexciting growth rate of 4.79% in the upcoming year . Below, I will examine the sector growth prospects, as well as evaluate whether SVBI is lagging or leading in the industry. View our latest analysis for Severn Bancorp
What’s the catalyst for SVBI’s sector growth?
The mortgage industry is characterized by stable product offerings, consolidation and increasing levels of external competition. In the previous year, the industry saw growth in the teens, though still underperforming the wider US stock market. SVBI lags the pack with its negative growth rate of -74.71% over the past year, which indicates the company will be growing at a slower pace than its mortgage and thrifts peers. As the company trails the rest of the industry in terms of growth, SVBI may also be a cheaper stock relative to its peers.
Is SVBI and the sector relatively cheap?
The mortgage and thrifts industry is trading at a PE ratio of 19x, relatively similar to the rest of the US stock market PE of 19x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 6.46% compared to the market’s 10.41%, potentially indicative of past headwinds. On the stock-level, SVBI is trading at a PE ratio of 23x, which is relatively in-line with the average mortgage and thrifts stock. In terms of returns, SVBI generated 4.78% in the past year, which is 2% below the mortgage and thrifts sector.
What this means for you:
Are you a shareholder? SVBI has been a mortgage and thrifts industry laggard in the past year. If your initial investment thesis is around the growth prospects of SVBI, there are other mortgage and thrifts companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how SVBI fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If SVBI has been on your watchlist for a while, now may be the best time to enter into the stock. It delivered lower earnings growth compared to its mortgage and thrifts peers in the near term, and it is also trading at a PE in-line with these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the financials sector.
For a deeper dive into Severn Bancorp’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other financial stocks instead? Use our free playform to see my list of over 600 other financial companies trading on the market.
To help readers see pass 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.
