Since August 2021, the S&P 500 has delivered a total return of 76.8%. But one standout stock has nearly doubled the market - over the past five years, Popular has surged 137% to $176.88 per share. Its momentum hasn’t stopped as it’s also gained 21.2% in the last six months, beating the S&P by 8.1%.
Following the strength, is BPOP a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Does Popular Spark Debate?
Founded in 1893 as the first bank in Puerto Rico to serve the working class, Popular (NASDAQ:BPOP) is a financial holding company that provides retail, mortgage, and commercial banking services primarily in Puerto Rico and the mainland United States.
Two Things to Like:
1. Increasing Net Interest Margin Juices Financials
Net interest margin (NIM) serves as a critical gauge of a bank’s fundamental profitability by showing the spread between interest income and interest expenses. It’s essential for understanding whether a firm can sustainably generate returns from its lending operations.
Over the past two years, Popular’s net interest margin averaged 3.8%, climbing by 58.8 basis points (100 basis points = 1 percentage point) over that period.
This expansion was a tailwind for its net interest income, and while prevailing interest rates matter the most for industry net interest margins, banks that consistently increase this figure generally boast higher-earning loan books (all else equal such as the risk of those loans) or provide differentiated services that give them the ability to charge higher rates (pricing power).
2. EPS Surges Higher Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Popular’s EPS grew at an astounding 33.8% compounded annual growth rate over the last two years, higher than its 8.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to Be Careful:
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.
Popular’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. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.
Final Judgment
Popular’s positive characteristics outweigh the negatives, and with its shares beating the market recently, the stock trades at 1.7× forward P/B (or $176.88 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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