Lake City Bank currently trades at $60.23 per share and has shown little upside over the past six months, posting a middling return of 3.4%. The stock also fell short of the S&P 500’s 9.8% gain during that period.
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Why Is Lake City Bank Not Exciting?
We’re swiping left on Lake City Bank for now. Here are three reasons why LKFN doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investment banking, and trading fees.
Unfortunately, Lake City Bank’s 5.1% annualized revenue growth over the last five years was sluggish. This fell short of our benchmark for the banking sector.
2. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
Lake City Bank’s net interest income has grown at a 6% 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 an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.
3. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Lake City Bank’s weak 3.9% 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.
Final Judgment
Lake City Bank’s business quality ultimately falls short of our standards. With its shares trailing the market in recent months, the stock trades at 1.9× forward P/B (or $60.23 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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