Over the last six months, Lake City Bank’s shares have sunk to $56.73, producing a disappointing 11.3% loss while the S&P 500 was flat. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Lake City Bank, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Lake City Bank Will Underperform?
Even with the cheaper entry price, we're swiping left on Lake City Bank for now. Here are three reasons there are better opportunities than LKFN and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Net interest income and and fee-based revenue are the two pillars supporting bank earnings. The former captures profit from the gap between lending rates and deposit costs, while the latter encompasses charges for banking services, credit products, wealth management, and trading activities.
Over the last five years, Lake City Bank grew its revenue at a sluggish 5.2% compounded annual growth rate. This was below our standard for the banking sector.
2. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
Lake City Bank’s net interest income has grown at a 6.3% annualized rate over the last five years, worse than the broader banking industry. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.
3. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Lake City Bank’s weak 4% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
Final Judgment
Lake City Bank doesn’t pass our quality test. Following the recent decline, the stock trades at 1.7× forward P/B (or $56.73 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
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