TowneBank (TOWN) is back on investor radars after recent share price moves, prompting a closer look at how the regional lender’s current valuation and fundamentals line up for long term holders.

Over the past year TowneBank’s share price has moved steadily higher, with a 90 day share price return of 10.93% and a year to date share price return of 13.67%. Total shareholder return over three years sits at 78.56% and 48.63% over five years, suggesting momentum has been building rather than fading.

Compare TowneBank’s recent momentum with a hand picked group of regional financial stocks by scanning the list of solid balance sheet and fundamentals (51 results) that may appeal to long term bank investors.

After this latest share price move, TowneBank now trades only modestly below the average analyst target, yet at a much larger discount to some intrinsic value estimates. Which reference point comes closest to fair value today?

Price to earnings of 10.8x: Is it justified for TowneBank?

TowneBank currently trades on a P/E of 10.8x, which screens as good value compared with peers and the wider US banks sector based on recent assessments.

The P/E multiple compares the company’s share price with its earnings per share. For a bank like TowneBank, this gives investors a quick way to relate the current $37.76 share price to the profits that the business is generating today.

Recent data suggests the market is valuing TowneBank at a lower P/E than similar US banks on average, and also slightly below an estimated fair P/E of 10.9x that some models point to as a reference level the multiple could move toward if conditions stay comparable.

On both counts, TowneBank’s 10.8x P/E sits at a discount to peers and close to the estimated fair ratio. This presents a picture of a stock priced conservatively relative to its earnings profile.

Result: Price-to-earnings of 10.8x (UNDERVALUED)

However, TowneBank’s annual net income growth has recently declined by 1.5%, and any pressure on its US focused revenue base could challenge the current valuation story.

Another view on TowneBank using the SWS DCF model

While the P/E suggests TowneBank is only modestly cheap, the SWS DCF model points to a very different picture. With the stock at $37.76 and an estimated future cash flow value of $77.39, it is indicated as significantly undervalued. Which signal should long term investors pay more attention to?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out TowneBank 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 49 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 TowneBank showing both potential and areas of concern, it makes sense to review the full risk and reward picture and form your own view before markets move. You can start by checking the 4 key rewards and 3 important warning signs

Looking for more investment ideas beyond TowneBank?

If you stop with TowneBank, you could miss other opportunities that fit your goals. Take a few minutes to scan fresh ideas with the Simply Wall Street Screener.

• Target strength first by reviewing companies that appear in our list of solid balance sheet and fundamentals (51 results).
• Hunt for potential mispriced stocks using the 49 high quality undervalued stocks.
• Prioritise stability and resilience by checking out the 74 resilient stocks with low risk scores.

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.