Coastal Financial (CCB): Evaluating Valuation After Earnings Beat and Loan Growth Momentum

Coastal Financial (CCB) just released its third quarter earnings, delivering revenue and efficiency ratios that came in above expectations. This performance was powered by notable revenue growth as well as ongoing gains in both loans and deposits.

See our latest analysis for Coastal Financial.

Coastal Financial’s quarterly update landed after a period of strong momentum, with the year-to-date share price return now at 25.66% and the 1-year total shareholder return reaching a robust 68.35%. Investors seem to be rewarding both recent earnings outperformance and the bank’s ability to grow loans and deposits. This suggests that optimism around its growth story is building.

If you’re looking to widen your search beyond Coastal’s impressive run, now could be a smart time to explore fast growing stocks with high insider ownership.

But with shares already running up this year and trading at only a modest discount to analyst targets, investors now face a key question: is there still meaningful upside left, or is future growth already reflected in the price?

Price-to-Earnings of 33.7x: Is it justified?

Coastal Financial is trading at a lofty price-to-earnings (P/E) ratio of 33.7 times, which stands well above typical levels seen in both its industry and among peers. At a last close of $106.5, this premium valuation raises the question of whether it is reflective of genuine business momentum or a sign of over-optimism.

The price-to-earnings ratio tells investors how much they are paying today for each dollar of company earnings. For banks, a lower P/E can point to market concern over growth or credit quality, while a higher P/E may imply a strong earnings outlook or investor appetite for risk. In this case, Coastal Financial’s elevated P/E highlights market confidence in its future earnings growth but also sets a high bar for actual performance.

Compared to its main benchmarks, Coastal Financial’s P/E is much higher than the US Banks industry average of 11.2x and the peer group average of 11.6x. The fair price-to-earnings ratio, estimated at 20.6x by regression analysis, suggests current levels are running high and could face downward adjustment if results disappoint or growth slows.

Explore the SWS fair ratio for Coastal Financial

Result: Price-to-Earnings of 33.7x (OVERVALUED)

However, earnings momentum could stall if loan growth slows or if higher rates begin to pressure deposit costs and margins.

Find out about the key risks to this Coastal Financial narrative.

Another View: The SWS DCF Model

While the price-to-earnings ratio points to a premium valuation, the SWS DCF model offers a different perspective. According to this method, Coastal Financial's shares are currently trading 22.4% below our calculated fair value. This indicates the stock could be undervalued based on its projected future cash flows. Which signal will be more relevant in the months ahead?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Coastal Financial for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 834 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Coastal Financial Narrative

If you have a different view, or want to form your own picture from the numbers, you can create your own narrative in just a few minutes. Do it your way.

A great starting point for your Coastal Financial research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

Ready for More Smart Investment Opportunities?

The market never stands still, and neither should your portfolio. Why not widen your scope and put your money to work in places others overlook?

• Tap into generational growth by following these 26 AI penny stocks, where the AI revolution is rewriting business models and unlocking unprecedented potential.
• Start building income streams you can count on by checking out these 22 dividend stocks with yields > 3%, featuring companies with reliable yields above 3%.
• Secure your place at the forefront of tomorrow’s breakthroughs with these 28 quantum computing stocks, spotlighting innovators harnessing the power of quantum computing today.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com