Northrim BanCorp Inc (NASDAQ:NRIM), a US$271m small-cap, operates in the banking 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, an extremely elevated growth of 39% in the upcoming year , and an enormous growth of 53% over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Is now the right time to pick up some shares in banking companies? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether Northrim BanCorp is lagging or leading its competitors in the industry.
What’s the catalyst for Northrim BanCorp’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. Northrim BanCorp is neither a lagger nor a leader, and has been growing in-line with its industry peers at around 11% in the prior year. However, analysts are not expecting this trend to continue, with future growth expected to be 28% compared to the wider banking sector growth hovering in the thirties next year. This growth is a median of profitable companies of 25 Banks companies in US including BankUnited, Live Oak Bancshares and Pacific Mercantile Bancorp. As a future industry laggard in growth, Northrim BanCorp may be a cheaper stock relative to its peers.
Is Northrim BanCorp and the sector relatively cheap?
The banking sector’s PE is currently hovering around 16.95x, in-line with the US stock market PE of 19.24x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 8.2% compared to the market’s 10%, potentially indicative of past headwinds. On the stock-level, Northrim BanCorp is trading at a PE ratio of 17.33x, which is relatively in-line with the average banking stock. In terms of returns, Northrim BanCorp generated 7.9% in the past year, in-line with its industry average.
If Northrim BanCorp has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a banking industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the financial sector. However, before you make a decision on the stock, I suggest you look at Northrim BanCorp’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 NRIM’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 Northrim BanCorp? 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 email@example.com.