Although Commerce Bancshares (currently trading at $54.64 per share) has gained 6.7% over the last six months, it has trailed the S&P 500’s 14.3% return during that period. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Commerce Bancshares, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Commerce Bancshares Not Exciting?
We don’t have much confidence in Commerce Bancshares. Here are three reasons why there are better opportunities than CBSH, plus one stock we’d rather own.
1. Net Interest Income Points to Soft Demand
Our experience and research show the market cares primarily about a bank’s net interest income growth as one-time fees are considered a lower-quality and non-recurring revenue source.
Commerce Bancshares’s net interest income has grown at a 7% annualized rate over the last five years, worse than the broader banking industry and in line with its total revenue.
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Commerce Bancshares’s weak 4.3% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
3. Projected TBVPS Growth Is Slim
A bank’s tangible book value per share (TBVPS) increases when it generates higher net interest margins and keeps credit losses low, allowing it to compound shareholder value over time.
Over the next 12 months, Consensus estimates call for Commerce Bancshares’s TBVPS to grow by 8.3% to $29.84, a paltry growth rate.
Final Judgment
Commerce Bancshares isn’t a terrible business, but it isn’t one of our picks. With its shares trailing the market in recent months, the stock trades at 1.7× forward P/B (or $54.64 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
Stocks We Would Buy Instead of Commerce Bancshares
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