Investors looking for stocks in the Banks - Midwest sector might want to consider either Independent Bank (IBCP) or Macatawa Bank (MCBC). But which of these two stocks offers value investors a better bang for their buck right now? We'll need to take a closer look.
We have found that the best way to discover great value opportunities is to pair a strong Zacks Rank with a great grade in the Value category of our Style Scores system. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Both Independent Bank and Macatawa Bank have a Zacks Rank of # 2 (Buy) right now. The Zacks Rank favors stocks that have recently seen positive revisions to their earnings estimates, so investors should rest assured that both of these companies have improving earnings outlooks. However, value investors will care about much more than just this.
Value investors also tend to look at a number of traditional, tried-and-true figures to help them find stocks that they believe are undervalued at their current share price levels.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
IBCP currently has a forward P/E ratio of 14.65, while MCBC has a forward P/E of 15.60. We also note that IBCP has a PEG ratio of 1.83. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. MCBC currently has a PEG ratio of 1.95.
Another notable valuation metric for IBCP is its P/B ratio of 1.77. The P/B is a method of comparing a stock's market value to its book value, which is defined as total assets minus total liabilities. By comparison, MCBC has a P/B of 2.30.
These metrics, and several others, help IBCP earn a Value grade of B, while MCBC has been given a Value grade of C.
Both IBCP and MCBC are impressive stocks with solid earnings outlooks, but based on these valuation figures, we feel that IBCP is the superior value option right now.