First Financial Bankshares trades at $34.75 and has moved in lockstep with the market. Its shares have returned 12.1% over the last six months while the S&P 500 has gained 8%.
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Why Is First Financial Bankshares Not Exciting?
We’re sitting this one out for now. Here are three reasons we avoid FFIN, 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, First Financial Bankshares grew its revenue at a sluggish 5.3% 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.
First Financial Bankshares’s net interest income has grown at a 7.4% annualized rate over the last five years, worse than the broader banking industry.
3. EPS Barely Growing
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.
First Financial Bankshares’s weak 4.7% 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
First Financial Bankshares isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 2.4× forward P/B (or $34.75 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d suggest looking at the Amazon and PayPal of Latin America.
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