Source: Africa Studio / Shutterstock.com
The banking system has run into a fresh crisis, leaving several bank stocks to sell. Shares of New York Community Bancorp (NYSE:NYCB) plunged recently following a massive earnings miss and credit rating downgrade. This unleashed broader concerns about the state of the American regional banking system, particularly regarding credit quality and loans in the commercial real estate space.
Many traders are looking to buy the lows, and understandably so. Many regional banking stocks have plunged in 2024 and could provide sizable recoveries when things turn around. However, other bank stocks to sell at higher valuations could be set for dramatic declines if the current industry downturn worsens.
Triumph Financial (TFIN)
Triumph Financial (NASDAQ:TFIN) is a Dallas, Texas, regional bank with more than $5 billion in total assets.
The bank has grown quickly and lends into various niche specialty finance verticals. While the stereotype is that Texas banks’ fortunes are tied to the oil and gas industry, Triumph’s customer base is far more diversified and sturdier.
The bank has performed well, and there’s little disputing that the management team is above average. Triumph is a good bank. But shares are trading at a ludicrous valuation.
Triumph has a book value of just $35/share, whereas shares have rallied sharply recently and now go for almost $80/each. The bank is going for a jaw-dropping 43 times forward earnings at that price. Regardless of how well-run a regional bank may be, it’s hard to imagine a fundamental story to justify this valuation. If the regional bank jitters spread to Texas in any way, TFIN stock would be set for a massive decline.
SoFi Technologies (SOFI)
Speaking of costly bank stocks, there’s SoFi Technologies (NASDAQ:SOFI).
Shares of the purported financial technology company are going for more than 100 times forward earnings. Bulls like to suggest SoFi is changing the financial game. However, its shares should not be compared to traditional banking companies.
However, If you value it as a bank, SOFI stock is selling for an absurdly high price. The bank lost money outright last year, sells for a chunky premium to book value and generated a negative return on equity (ROE). Typically, banks with marginal profitability sell for rock-bottom prices. SoFi has spent heavily on marketing gambles, such as stadium naming rights deals, without first getting its financial house in order.
When you look at SoFi’s actual business, it’s mostly vanilla banking stuff like personal loans, credit cards, banking and student loan refinancing. And don’t take my word for it; that’s SoFi’s own website describing its business. A wildly expensive bank stock heading into a potential recession? That’s a stock to sell today.
Bank of America (BAC)
Bank of America (NYSE:BAC) is one of the country’s dominant financial franchises. It has a tremendous market share in retail banking and sizable operations in investment banking and asset management.
Value investors have gravitated to BAC stock in recent years as a potential turnaround story that could support a much higher valuation.
That thesis has worked to some extent but now leaves BAC stock in an awkward position. Bank of America doesn’t have as cheap a valuation as some other too-big-to-fail-banks. Meanwhile, its business quality and management are not high enough to be worth the same as a firm like JPMorgan Chase (NYSE:JPM).
At a time when many bank stocks are quite depressed, BAC’s 11 forward P/E ratio and less than 3% dividend yield fail to jump off the screen. Meanwhile, Bank of America faces some challenges this year, such as uninsured deposits, special big bank FDIC assessments and the potential for a significant rise in consumer credit charge-offs in 2024. BAC stock may eventually be a good bank to own again, but the current risk/reward scenario is decidedly unfavorable.
On the date of publication, Ian Bezek held a long position in NYCB stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.