• Investors may be wondering whether Old Second Bancorp at around US$20 still offers value, or if most of the upside has already been priced in.
• The stock has recently seen an 8.8% decline over the last 7 days, set against a 2.0% return over 30 days, 2.7% year to date and 29.8% over 1 year.
• Recent coverage has focused on Old Second Bancorp in the context of broader bank sector sentiment and how investors are reassessing risk and return across regional financials. This background helps frame why a stock with a 69.0% 3 year return and 62.0% 5 year return can still see short term pullbacks.
• Old Second Bancorp currently has a valuation score of 3/6. This reflects how many of Simply Wall St's checks suggest the shares may be undervalued. The rest of this article will walk through the key valuation methods used before finishing with a more complete way to think about what that score really means for you.

Approach 1: Old Second Bancorp Excess Returns Analysis

The Excess Returns model looks at how much value Old Second Bancorp creates above the return that equity investors are estimated to require. Instead of focusing on cash flows, it compares earnings power to the cost of equity and links that back to the bank's book value per share.

For Old Second Bancorp, book value is $17.11 per share and the stable earnings figure used in the model is $2.43 per share, based on weighted future Return on Equity estimates from 4 analysts. With an average Return on Equity of 11.87%, the model compares this to a cost of equity of $1.43 per share, leaving an excess return of $1.00 per share.

The stable book value is $20.50 per share, drawn from weighted future Book Value estimates from 5 analysts. Combining this book value base with the estimated excess return stream leads to an Excess Returns fair value of about $48.59 per share. Against the current share price around US$20, this suggests the stock is 58.8% undervalued on this measure.

Result: UNDERVALUED

Our Excess Returns analysis suggests Old Second Bancorp is undervalued by 58.8%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.

Approach 2: Old Second Bancorp Price vs Earnings

For a profitable bank like Old Second Bancorp, the P/E ratio is a useful way to relate what you pay for each share to the earnings that support it. It helps you see how much the market is currently willing to pay for every dollar of earnings, which is a simple way to compare valuation across similar companies.

What counts as a “normal” or “fair” P/E depends on how the market views growth potential and risk. Higher growth or lower perceived risk can support a higher P/E, while slower growth or higher risk usually points to a lower multiple. That context matters when you compare Old Second Bancorp with other banks.

Old Second Bancorp currently trades on a P/E of 12.03x. This sits slightly above the Banks industry average of 11.51x and near the peer group average of 11.32x. Simply Wall St’s Fair Ratio for Old Second Bancorp is 12.65x. This is an estimate of what the P/E could be given its earnings profile, industry, margins, size and risk factors. Because the Fair Ratio reflects company specific characteristics rather than just broad group averages, it can be more tailored than simple peer or industry comparisons. On this basis, Old Second Bancorp’s current 12.03x P/E is below the 12.65x Fair Ratio. This suggests the shares appear undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Old Second Bancorp Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so meet Narratives, which let you attach a clear story to the numbers by linking your view of Old Second Bancorp’s future revenues, earnings and margins to a forecast and then to a fair value that you can compare with today’s price.

On Simply Wall St’s Community page, Narratives are an easy tool used by millions of investors to set assumptions, see the implied fair value that follows from those assumptions, and then decide whether the gap between fair value and the current price points to a buy, a hold, or a sell decision for their own portfolio.

Because Narratives update automatically when fresh information comes in, such as new earnings, news or changes in analyst forecasts, your view does not stay static and you can see in real time how the story you believe in translates into the numbers you are using.

For Old Second Bancorp, one investor might build a Narrative around the higher analyst target of US$26.00 based on confidence in revenue of US$360.8m, earnings of US$141.4m and a P/E of 13.2x by 2029, while another might anchor closer to the US$22.00 low target if they place more weight on risks around Illinois concentration, digital competition and commercial real estate exposure. Both can clearly see how their story shapes their fair value and decisions.

Do you think there's more to the story for Old Second 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.