Hilltop Holdings trades at $37.97 and has moved in lockstep with the market. Its shares have returned 8.5% over the last six months while the S&P 500 has gained 12.4%.
Is now the time to buy Hilltop Holdings, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Hilltop Holdings Will Underperform?
We’re swiping left on Hilltop Holdings for now. Here are three reasons we avoid HTH, plus one stock we’d rather own.
1. Net Interest Income Points to Soft Demand
While banks generate revenue from multiple sources, investors view net interest income as a cornerstone — its predictable, recurring characteristics stand in sharp contrast to the volatility of one-time fees.
Hilltop Holdings’s net interest income has grown at a 1.3% annualized rate over the last five years, much worse than the broader banking industry. 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.
2. Efficiency Ratio Expected to Falter
Topline growth alone doesn’t tell the complete story — the profitability of that growth shapes actual earnings impact. Banks track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.
Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.
For the next 12 months, Wall Street expects Hilltop Holdings to become less profitable as it anticipates an efficiency ratio of 84.1% compared to 54.2% over the past year.
3. EPS Trending Down
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.
Sadly for Hilltop Holdings, its EPS declined by 14.8% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Final Judgment
We cheer for all companies supporting the economy, but in the case of Hilltop Holdings, we’ll be cheering from the sidelines. That said, the stock currently trades at 1× forward P/B (or $37.97 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. Let us point you toward one of our top software and edge computing picks.
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