OceanFirst Financial trades at $18.65 and has moved in lockstep with the market. Its shares have returned 14.2% over the last six months while the S&P 500 has gained 10%.
Is now the time to buy OceanFirst Financial, 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 Do We Think OceanFirst Financial Will Underperform?
We're cautious about OceanFirst Financial. Here are three reasons we avoid OCFC and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Our experience and research show the market cares primarily about a bank’s net interest income growth as one-time fees are considered a lower-quality and non-recurring revenue source.
OceanFirst Financial’s net interest income has grown at a 2.9% annualized rate over the last five years, much worse than the broader banking industry. This was driven by its loan growth as its net interest margin, which represents how much a bank earns in relation to its outstanding loan book, declined throughout that period.
2. 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.
OceanFirst Financial’s weak 3.6% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
3. TBVPS Projections Show Stormy Skies Ahead
Tangible book value per share (TBVPS) growth is driven by a bank’s ability to earn more than its cost of capital through lending activities while maintaining a strong balance sheet.
Over the next 12 months, Consensus estimates call for OceanFirst Financial’s TBVPS to shrink by 2.2% to $19.36, a sour projection.
Final Judgment
We cheer for all companies supporting the economy, but in the case of OceanFirst Financial, we’ll be cheering from the sidelines. That said, the stock currently trades at 0.7× forward P/B (or $18.65 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d suggest looking at a top digital advertising platform riding the creator economy.
Stocks We Like More Than OceanFirst Financial
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