• If you are wondering whether Stock Yards Bancorp at about US$69.54 is offering fair value right now, the key is to line up its price against what the business may be worth using a few different yardsticks.
• The stock has returned 2.8% over the last 7 days, 3.1% over the last 30 days, 6.7% year to date, but is still showing a 7.8% decline over the last year, even though the 3 year and 5 year returns sit at 21.7% and 60.8% respectively.
• These mixed returns sit against a backdrop where Stock Yards Bancorp continues to attract attention as a regional banking name, with investors reacting to broader sector sentiment and company specific updates. Together, these factors help explain why shorter term moves differ from the longer term record.
• On our checks, Stock Yards Bancorp has a valuation score of 2 out of 6. This means it screens as undervalued on two of six measures. Next, we will walk through the main valuation approaches used here before looking at a different way to think about value at the end of the article.

Stock Yards Bancorp scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Stock Yards Bancorp Excess Returns Analysis

The Excess Returns model asks a simple question: after covering the expected cost of equity, how much additional earnings does Stock Yards Bancorp generate on its shareholders’ capital, and what is that worth per share today?

Here, the bank is assessed on a Book Value of $34.42 per share and a Stable EPS of $5.41 per share, based on weighted future Return on Equity estimates from 5 analysts. The Cost of Equity is set at $3.03 per share, which implies an Excess Return of $2.38 per share. In other words, the earnings attributed to equity holders are modeled to sit above the required return, given an Average Return on Equity of 12.42%.

The Stable Book Value is estimated at $43.53 per share, sourced from weighted future Book Value estimates from 6 analysts. Combining these inputs, the Excess Returns model points to an intrinsic value of about $107.88 per share, compared with the recent share price of about $69.54. On this approach, the stock screens as materially undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests Stock Yards Bancorp is undervalued by 35.5%. Track this in your watchlist or portfolio, or discover 864 more undervalued stocks based on cash flows.

Approach 2: Stock Yards Bancorp Price vs Earnings

For a profitable company like Stock Yards Bancorp, the P/E ratio is a useful quick check because it links what you are paying directly to the earnings the bank is currently generating. A higher or lower P/E often reflects what the market expects for future earnings and how risky those earnings are perceived to be, so growth prospects and risk profile tend to influence what looks like a “normal” or “fair” P/E level.

Stock Yards Bancorp is currently trading on a P/E of 14.63x. That sits above the Banks industry average of about 11.99x and is also a little higher than the selected peer average of 14.12x. On the surface, that suggests investors are willing to pay more per dollar of earnings than for the broader industry and similar peers.

Simply Wall St’s Fair Ratio for Stock Yards Bancorp is 12.31x. This proprietary metric aims to estimate what the P/E “should” be given a range of factors, including the company’s earnings profile, its industry, profit margins, market cap and specific risks. Because it adjusts for these elements, it can give a more tailored view than a simple comparison with peers or the industry average. With the actual P/E of 14.63x above the Fair Ratio of 12.31x, the shares screen as overvalued on this metric alone.

Result: OVERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1425 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Stock Yards Bancorp Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about a company tied directly to your own numbers for fair value, future revenue, earnings and margins.

A Narrative connects what you believe about Stock Yards Bancorp as a business to a financial forecast and then to a fair value estimate, so you are not just looking at ratios in isolation but at a joined up picture.

On Simply Wall St, Narratives are available on the Community page and are used by many investors as a tool to compare their view of fair value with the current share price, update that view when new news or earnings are released, and decide for themselves whether the stock looks appealing or not at any given time.

For example, one Stock Yards Bancorp Narrative might assume a relatively low fair value and cautious revenue or margin path, while another might use a higher fair value and more optimistic assumptions. Seeing that spread side by side can help you decide where your own view sits.

Do you think there's more to the story for Stock Yards Bancorp? Head over to our Community to see what others are saying!

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.