Analyzing Investar (NASDAQ:ISTR) and Preferred Bank (PFBC)

Investar (NASDAQ:ISTR) and Preferred Bank (NASDAQ:PFBC) are both small-cap finance companies, but which is the superior investment? We will compare the two businesses based on the strength of their valuation, earnings, profitability, dividends, risk, analyst recommendations and institutional ownership.

Dividends

Investar pays an annual dividend of $0.18 per share and has a dividend yield of 0.7%. Preferred Bank pays an annual dividend of $1.00 per share and has a dividend yield of 1.6%. Investar pays out 16.1% of its earnings in the form of a dividend. Preferred Bank pays out 29.2% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Investar has increased its dividend for 2 consecutive years and Preferred Bank has increased its dividend for 3 consecutive years. Preferred Bank is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Risk & Volatility

Investar has a beta of 0.33, indicating that its stock price is 67% less volatile than the S&P 500. Comparatively, Preferred Bank has a beta of 0.93, indicating that its stock price is 7% less volatile than the S&P 500.

Analyst Recommendations

This is a summary of current recommendations and price targets for Investar and Preferred Bank, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Investar 0 0 3 0 3.00
Preferred Bank 0 1 3 2 3.17

Investar currently has a consensus target price of $29.33, suggesting a potential upside of 9.82%. Preferred Bank has a consensus target price of $73.50, suggesting a potential upside of 21.19%. Given Preferred Bank’s stronger consensus rating and higher possible upside, analysts plainly believe Preferred Bank is more favorable than Investar.

Valuation & Earnings

This table compares Investar and Preferred Bank’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Investar $57.16 million 4.47 $8.20 million $1.12 23.85
Preferred Bank $163.42 million 4.90 $43.39 million $3.42 17.73

Preferred Bank has higher revenue and earnings than Investar. Preferred Bank is trading at a lower price-to-earnings ratio than Investar, indicating that it is currently the more affordable of the two stocks.

Institutional & Insider Ownership

58.2% of Investar shares are held by institutional investors. Comparatively, 88.3% of Preferred Bank shares are held by institutional investors. 9.1% of Investar shares are held by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company will outperform the market over the long term.

Profitability

This table compares Investar and Preferred Bank’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Investar 15.20% 7.90% 0.83%
Preferred Bank 30.57% 17.86% 1.66%

Summary

Preferred Bank beats Investar on 14 of the 17 factors compared between the two stocks.

Investar Company Profile

Investar Holding Corporation operates as the bank holding company for Investar Bank that provides a range of commercial banking products for individuals and small to medium-sized businesses in South Louisiana. The company offers various deposit products and services, such as savings, checking, money market, NOW, and individual retirement accounts, as well as various certificates of deposit; debit cards; and mobile banking services. It also provides commercial real estate loans; loans for the construction of commercial projects, and single family residential and multifamily properties; commercial and industrial loans, such as working capital lines of credit and equipment loans; consumer loans comprising secured and unsecured installment and term loans, second mortgages, home equity loans and lines of credit, and auto loans, as well as loans for personal, family, and household purposes; and one-to-four family residential real estate loans consisting of second and other second mortgage loans. In addition, the company offers cash management products, including remote deposit capture, electronic statements, positive pay, ACH origination and wire transfer, investment sweep accounts, and business Internet banking services. Further, it provides various other banking services, such as cashiers' checks, direct deposit of payroll and social security checks, night depository, bank-by-mail, automated teller machine, and merchant card services. The company operates through a network of 20 full service branches. Investar Holding Corporation was founded in 2006 and is headquartered in Baton Rouge, Louisiana.

Preferred Bank Company Profile

Preferred Bank provides various commercial banking products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals in the United States. The company's deposit products include checking, savings, negotiable order of withdrawal, and money market deposit accounts; fixed-rate and fixed maturity retail, and non-retail certificates of deposit; and individual retirement accounts. It also provides real estate mortgage loans that are secured by retail, industrial, office, special purpose, and residential single and multi-family properties; real estate construction loans; commercial loans comprising lines of credit for working capital and term loans for capital expenditures; and commercial and export letters of credit, import lines of credit, documentary collections, international wire transfers, export financing products, bills purchase programs, and acceptances/trust receipt financing products, as well as standby letters of credit and foreign exchange services for importers and exporters. In addition, it offers various high-wealth banking services to wealthy individuals residing in the Pacific Rim area with residences, real estate investments, or businesses in Southern California. Further, it provides various banking services to physicians, accountants, attorneys, business managers, and other professionals; and safe deposit boxes, account reconciliation, courier service, and cash management services to the manufacturing, service, and distribution companies. Additionally, it offers remote deposit capture, and Internet and mobile banking services. As of December 31, 2017, it had 13 full-service branch offices in Alhambra, Arcadia, Century City, City of Industry, Diamond Bar, Los Angeles, Pico Rivera, San Francisco, Tarzana, Torrance, Anaheim, and Irvine, California; and Flushing, New York. The company was founded in 1991 and is headquartered in Los Angeles, California.

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