Multiple law firms are scrutinizing Merchants Bancorp (MBIN) after Q1 2026 results highlighted a sharp reduction in brokered deposits and higher funding costs, raising fresh questions about the sustainability of the current earnings profile.

The stock has been volatile around Q1 2026, with a reported 9.3% single session drop after the earnings release and legal investigations. However, a 41.02% year to date share price return and 50.41% 1 year total shareholder return point to momentum that has built over a longer period.

If the deposit story at Merchants Bancorp has your attention, it may be worth broadening your watchlist and seeing what stands out among 18 top founder-led companies

With shares up sharply over the past year, Q1 earnings appearing solid on the surface and legal questions building around deposit disclosures, investors may need to ask whether Merchants Bancorp is still undervalued or whether the market is already pricing in future growth.

Preferred P/E of 11.4x: Is it justified?

At a last close of $46.79, Merchants Bancorp trades on a P/E of 11.4x, which screens as undervalued against both its own fair P/E estimate and the broader diversified financials peer group.

The P/E multiple compares the share price to earnings per share and is a common way to gauge how the market is pricing current profits. For a diversified financial company with customer deposits and forecast earnings growth, it helps you see whether the stock is being priced more like a slow grower or a faster growing peer.

Here, MBIN's P/E of 11.4x sits below the US diversified financials industry average of 18.5x and below the estimated fair P/E of 14.9x. That gap suggests the market is valuing MBIN's earnings at a discount compared to both peers and where regression based analysis indicates the multiple could move over time if conditions align.

Result: Price-to-earnings of 11.4x (UNDERVALUED)

However, the legal scrutiny around brokered deposits and higher funding costs could unsettle confidence in MBIN's earnings quality and challenge the current valuation narrative.

Another view: DCF points to a very different price

While the 11.4x P/E suggests MBIN trades at a discount to peers, the SWS DCF model points to an estimated value of $133.69 per share versus the current $46.79. That is a large gap, and it raises a simple question for you: is the market too cautious, or is the model too optimistic?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Merchants Bancorp for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With the mix of legal questions, valuation gaps and recent share price swings, the picture is not straightforward. Take a closer look at the details, weigh the potential upside and downside for yourself, and use the 3 key rewards and 3 important warning signs

Looking for more investment ideas?

If MBIN sits on your watchlist, do not stop there. Broader ideas can help you compare risks, income potential and balance sheet strength across different opportunities.

• Spot opportunities that combine quality and attractive pricing by scanning 51 high quality undervalued stocks before the market pays closer attention.
• Build a portfolio with potential income anchors by reviewing the 12 dividend fortresses that might complement more growth focused holdings.
• Strengthen your downside protection by focusing on resilience first with the 71 resilient stocks with low risk scores while others only chase headlines.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.