Over the past six months, Columbia Financial’s shares (currently trading at $14.02) have posted a disappointing 6% loss, well below the S&P 500’s 5% gain. This may have investors wondering how to approach the situation.

Is now the time to buy Columbia Financial, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Columbia Financial Will Underperform?

Even though the stock has become cheaper, we're swiping left on Columbia Financial for now. Here are three reasons why you should be careful with CLBK and a stock we'd rather own.

1. Declining Net Interest Income Reflects Weakness

Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.

Columbia Financial’s net interest income has declined by 4.9% annually over the last four years, much worse than the broader bank industry. A silver lining is that lending outperformed its other business lines. This was driven by a decrease in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book increased throughout that period.

2. Net Interest Margin Dropping

Net interest margin represents how much a bank earns in relation to its outstanding loans. It’s one of the most important metrics to track because it shows how a bank’s loans are performing and whether it has the ability to command higher premiums for its services.

Over the past two years, Columbia Financial’s net interest margin averaged 2%. Its margin also contracted by 94.7 basis points (100 basis points = 1 percentage point) over that period.

This decline was a headwind for its net interest income. While prevailing rates are a major determinant of net interest margin changes over time, the decline could mean Columbia Financial either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.

3. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Columbia Financial’s full-year EPS dropped 24.8%, or 4.5% annually, over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Columbia Financial’s low margin of safety could leave its stock price susceptible to large downswings.

Final Judgment

Columbia Financial falls short of our quality standards. After the recent drawdown, the stock trades at 1.3× forward P/B (or $14.02 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Would Buy Instead of Columbia Financial

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