Over the past six months, Cathay General Bancorp has been a great trade, beating the S&P 500 by 17.5%. Its stock price has climbed to $62.51, representing a healthy 25.5% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Cathay General Bancorp, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Cathay General Bancorp Not Exciting?
We’re happy investors have made money, but we don’t have much confidence in Cathay General Bancorp. Here are three reasons why CATY doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income.
Over the last five years, Cathay General Bancorp grew its revenue at a tepid 6.9% compounded annual growth rate. 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.
Cathay General Bancorp’s net interest income has grown at a 6.5% annualized rate over the last five years, worse than the broader banking industry and in line with its total revenue.
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.
Cathay General Bancorp’s unimpressive 8.7% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
Cathay General Bancorp isn’t a terrible business, but it doesn’t pass our quality test. With its shares topping the market in recent months, the stock trades at 1.3× forward P/B (or $62.51 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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