Financial service stocks generally perform in-line with the economy, since these businesses offer services ranging from investment banking to consumer financing, which are in demand during prosperous economic times. Currently, Resource Capital and First Bancorp are financial companies I’ve identified as potentially undervalued, meaning their share price is below what these companies are actually worth. There’s a few ways you can determine how much a financial company is actually worth. The most popular methods include discounting the company’s cash flows it is expected to create in the future, or comparing its price to its peers or the value of its assets. The discrepancy between the price and value means investors have an opportunity to buy shares at a discount. Below are the stocks I believe are undervalued on all criteria, based on their latest financial data.
Resource Capital Corp. (NYSE:RSO)
Resource Capital Corp., a real estate investment trust, primarily focuses on the origination, holding, and management of commercial mortgage loans and commercial real estate-related debt investments in the United States. Started in 2005, and now led by CEO Robert Lieber, the company provides employment to 83 people and with the stock’s market cap sitting at USD $307.31M, it comes under the small-cap category.
RSO’s stock is now trading at -69% below its value of $32.39, at a price of US$9.93, according to my discounted cash flow model. This discrepancy signals a potential opportunity to buy RSO shares at a low price.
RSO also has a healthy balance sheet, with current assets covering liabilities in the near term and over the long run. It’s debt-to-equity ratio of 222.18% has been reducing over the past couple of years demonstrating its capacity to pay down its debt. More on Resource Capital here.
The First Bancorp, Inc. (NASDAQ:FNLC)
The First Bancorp, Inc. operates as the holding company for First National Bank that provides a range of banking products and services to individual and corporate customers. Started in 1864, and headed by CEO Tony McKim, the company employs 231 people and with the company’s market cap sitting at USD $314.09M, it falls under the small-cap group.
FNLC’s shares are now trading at -57% below its value of $67.83, at the market price of US$29.00, based on my discounted cash flow model. The mismatch signals a potential chance to invest in FNLC at a discounted price. Moreover, FNLC’s PE ratio stands at around 15.25x relative to its Banks peer level of, 17.01x implying that relative to its peers, we can buy FNLC’s stock at a cheaper price today. FNLC is also strong in terms of its financial health, as near-term assets sufficiently cover liabilities in the near future as well as in the long run.
More detail on First Bancorp here.
Summit Financial Group, Inc. (NASDAQ:SMMF)
Summit Financial Group, Inc. operates as a financial holding company for Summit Community Bank, Inc. Formed in 1987, and run by CEO H. Maddy, the company now has 349 employees and with the stock’s market cap sitting at USD $318.06M, it comes under the small-cap group.
SMMF’s stock is currently trading at -67% beneath its intrinsic level of $77.31, at a price of US$25.76, based on my discounted cash flow model. The discrepancy signals an opportunity to buy low. Additionally, SMMF’s PE ratio stands at 15.14x relative to its Banks peer level of, 17.01x meaning that relative to other stocks in the industry, SMMF can be bought at a cheaper price right now. SMMF is also a financially robust company, with short-term assets covering liabilities in the near future as well as in the long run.
Dig deeper into Summit Financial Group here.
For more financially sound, undervalued companies to add to your portfolio, explore this interactive list of undervalued stocks.
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.