Popular has had an impressive run over the past six months as its shares have beaten the S&P 500 by 18.9%. The stock now trades at $149.59, marking a 30.3% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is it too late to buy BPOP? Find out in our full research report, it’s free.

Why Does BPOP Stock 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 Positive Attributes:

1. Increasing Net Interest Margin Juices Financials

Net interest margin (NIM) represents how much a bank earns in relation to its outstanding loans. It's one of the most important metrics to track because it shows how a bank's loans are performing and whether it has the ability to command higher premiums for its services.

Over the past two years, Popular’s net interest margin averaged 3.7%, climbing by 57.2 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 30.9% compounded annual growth rate over the last two years, higher than its 8.1% 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

While bank 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.

Popular’s net interest income has grown at a 6.9% annualized rate over the last five years, worse than the broader banking industry and slower than 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 1.4× forward P/B (or $149.59 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free.

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