Valley National Bancorp (VLY, Financial) is a bank holding company based in New York City. It employs around 3,826 full-time employees. The company's main subsidiary is Valley National Bank, which provides a wide range of banking services, including consumer and commercial deposit and lending products, commercial real estate financing, small business loans, equipment financing, insurance, wealth management, cash management and personal financing solutions like mortgages, home equity loans and automobile financing. Additionally, the company offers specialized financial services such as loans and deposits for homeowners' associations, insurance premium financing and banking services for cannabis-related businesses.
During the banking crisis in March, which resulted in the failure of Silicon Valley Bank and Signature Bank, Valley, like many other banks, got hit. The stock has recovered somewhat, but is still 39% below its high from last year.
Valley has experienced substantial insider trading over the last several months. Most of the insider buys have occurred at a higher price than the stock is trading at currently, and there has been no insider selling. This is invariably a good sign because insiders sell shares for many reasons, but, like most of us, they buy for one main reason: they think the stock is going higher. Therefore, it makes sense to pay particular attention to the stock.
I look a several important metrics to assess banks. These are as follows:
| Ticker | Company | CurrentPrice | Tangible Bookper Share | Price-to-Tangible Book | PB Ratio | ROE % | ROA % | Price-to-Graham Number | 10-Year Book GrowthRate (Per Share) | PE Ratio(TTM) | Market Cap($M) |
| VLY | Valley National Bancorp | 9.14 | 8.51 | 1.07 | 0.73 | 10.03 | 1.09 | 0.60 | 5.10 | 7.43 | 4,642.32 |
Some of them are discussed below.
Book value
Valley's price-book ratio is 0.73, while the price-to-tangible book value ratio is 1.07. Both ratios look excellent.
Book value is highly significant for banks due to its multifaceted role in assessing their financial health, risk resilience and overall stability. It serves as a fundamental indicator, representing the value of a bank's assets minus liabilities, which aids in evaluating a bank's net worth. This metric is crucial for regulatory compliance, ensuring that banks meet capital requirements and withstand economic downturns. Investors use it to assess stock value, while it also plays a pivotal role in mergers and acquisitions, helping determine fair acquisition prices. Book value influences creditworthiness, impacts lending decisions and is integral in stress testing exercises to gauge a bank's resilience in adverse scenarios. In essence, book value is a foundational factor guiding financial and strategic decisions for banks and their stakeholders.
Tangible book value per share is important because it shows the value of a company's net assets minus its intangible assets on a per-share basis. Intangible assets are important, but they are not physical assets that can be readily sold if the company gets into trouble. It is an even more conservative measure than book value.
Return on equity
Valley's return on equity is 10.03%, which is quite good considering the price-book ratio is below 1.
Return on equity holds significant importance for banks as it serves multiple critical functions. First and foremost, it acts as a key profitability gauge, revealing how effectively a bank generates earnings relative to shareholders' equity. It also functions as an efficiency indicator, highlighting the bank's ability to deploy capital efficiently. ROE plays a pivotal role in attracting investors and building their confidence in the bank's performance. Simultaneously, it aids in assessing the bank's risk profile, with a high ROE potentially indicating increased risk. Regulators utilize ROE to evaluate financial stability and adherence to capital requirements, and banks use it for benchmarking against peers, guiding capital allocation decisions and informing strategic planning. In essence, ROE encapsulates a bank's profitability, efficiency and risk, making it a crucial metric for performance evaluation and decision-making in the banking sector.
Graham number
The company's price-to-Graham number ratio is 0.60, which is good. Valley's Graham Number is 15.34.
The Graham number is a conservative valuation approach that measures a stock's fundamental value by taking into account the company's earnings per share and tangible book value per share.
It is calculated as Graham number equals the square root of 22.5 times trailing 12-month earnings per share time book value per share. The 22.5 is included in the formula as a rule of thumb to account for Graham's assumption that the price-to-earnings ratio should not be over 15 and the price-book ratio should not be over 1.5 for an undervalued stock. The Graham number is the upper bound of the price range that a defensive investor should pay for a stock. According to this theory, any stock price below the Graham number is considered undervalued, and thus worth investing in. Currently there is a 40% margin of safety even below the Graham number.
Summary
For the reasons explained above, Valley National Bancorp checks out as a worthy investment. The company pays a dividend yield of 4.8% with a payout ratio of 0.35. Its price-earnings ratio is 7.43, which tells me the market is not expecting any growth from the stock.
In spite of that, Valley has succeeded in growing its book value by over 5% annually over the last 10 years. Therefore, if the economy remains healthy, the company has the potential to deliver a surprising upside. The chart above shows that median price to book and median price to earnings valuation remains far above the stock price. As such, given insider buys, fundamentals and valuation, Valley National meets my criteria as a good investment opportunity.
