The Bank of Princeton (NASDAQ:BPRN), a US$225.80m 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. Many aspects of banking and capital markets are being attacked by new competitors, whose key advantage is a leaner and technology-enabled operating model, allowing them to scale at a faster rate and meet changing consumer needs. Financial services analysts are forecasting for the entire industry, a positive double-digit growth of 22.70% in the upcoming year , and an enormous growth of 33.21% over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Should your portfolio be overweight in the banking sector at the moment? In this article, I’ll take you through the sector growth expectations, and also determine whether Bank of Princeton is a laggard or leader relative to its financial sector peers.
What’s the catalyst for Bank of Princeton’s sector growth?
There is a growing awareness that banks cannot excel at every activity, and that it may be easier and cheaper to outsource noncore activities. However, 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. Bank of Princeton lags the pack with its negative growth rate of -0.65% over the past year, which indicates the company has been growing at a slower pace than its banking peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 35.44% in the upcoming year. This future growth may make Bank of Princeton a more expensive stock relative to its peers.
Is Bank of Princeton and the sector relatively cheap?
The banking industry is trading at a PE ratio of 16.32x, in-line with the US stock market PE of 18.4x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 8.82% compared to the market’s 11.37%, potentially indicative of past headwinds. On the stock-level, Bank of Princeton is trading at a PE ratio of 17.82x, which is relatively in-line with the average banking stock. In terms of returns, Bank of Princeton generated 6.88% in the past year, which is 1.94% below the banking sector.
Bank of Princeton’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 Bank of Princeton 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 Bank of Princeton’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 BPRN’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 Bank of Princeton? 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.