Merchants Bancorp (MBIN): Assessing Valuation After Analyst Upgrades and Record Tangible Book Value

Merchants Bancorp (MBIN) has drawn attention after Piper Sandler and Morgan Stanley upgraded the stock, citing better asset quality and successful moves to mitigate credit risk. The company’s tangible book value per share recently reached a new record.

See our latest analysis for Merchants Bancorp.

After showing resilience despite some volatility, Merchants Bancorp’s share price has edged up over the past month but still sits below where it started the year. The stock’s longer-term performance remains compelling, with a five-year total shareholder return of nearly 89%. However, sentiment has been challenged in 2024 as risk perceptions shift and the 12-month total return stands at -18%.

If you’re interested in broadening your approach and spotting what else is working in the market, consider exploring fast growing stocks with high insider ownership.

With analysts turning more optimistic and fundamentals showing signs of improvement, does Merchants Bancorp’s current price reflect a discount on its future prospects, or is the market already factoring in the growth ahead?

Price-to-Earnings of 7.3x: Is it justified?

Merchants Bancorp trades at a price-to-earnings (P/E) ratio of 7.3x, which makes its shares appear attractively valued relative to peers and the broader industry. At the last close of $31.97, investors are paying far less for each dollar of trailing earnings than is typical in the diversified financial sector.

The price-to-earnings ratio measures how much the market is willing to pay for $1 of the company’s net profit. For banks and financials, it is a key metric reflecting growth potential, risk profile, and earnings consistency.

This low multiple could suggest the market is underappreciating Merchants Bancorp’s earning power and future prospects. When compared to the US Diversified Financial industry average of 13.2x and a peer average of 11.6x, MBIN’s P/E ratio stands out as a considerable discount. The estimated fair P/E for the company is even higher at 13.7x, which may indicate there is room for the valuation to move upward if conditions improve.

Explore the SWS fair ratio for Merchants Bancorp

Result: Price-to-Earnings of 7.3x (UNDERVALUED)

However, ongoing volatility in financial markets and shifting investor sentiment could challenge the case for a sustained rerating of Merchants Bancorp’s valuation.

Find out about the key risks to this Merchants Bancorp narrative.

Another View: What Does Discounted Cash Flow Suggest?

While market multiples like the price-to-earnings ratio indicate Merchants Bancorp could be undervalued, the SWS DCF model provides an even more dramatic perspective. According to our DCF analysis, MBIN is currently trading 50.6% below its estimated fair value of $64.71. This suggests substantial upside potential if forecasts are met. However, questions remain about how reliable this long-term model is compared to the market’s current pricing.

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 Merchants Bancorp 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 906 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 Merchants Bancorp Narrative

If you see things differently or want to dive deeper into the numbers yourself, you can craft your own narrative in just a few minutes. Do it your way.

A great starting point for your Merchants Bancorp research is our analysis highlighting 4 key rewards and 2 important warning signs that could impact your investment decision.

Ready to Seize More Opportunities?

Don’t let your next smart move slip by. Use Simply Wall Street’s powerful screener to pinpoint stocks aligning with your goals in just minutes.

• Tap into steady income streams by checking out these 16 dividend stocks with yields > 3% with robust yields above 3% and reliable payout histories.
• Unlock growth in a cutting-edge sector by browsing these 31 healthcare AI stocks, showcasing companies transforming healthcare with artificial intelligence innovation.
• Accelerate your portfolio with value picks by reviewing these 906 undervalued stocks based on cash flows, packed with stocks trading below their intrinsic cash flow value.

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.