• If you are wondering whether Texas Capital Bancshares at around US$104 is offering good value or asking too much, you are in the right place.
• The stock closed at US$104.37 recently, with returns of 1.3% over the last week, 6.5% over the last month, 13.8% year to date, 27.0% over one year and 60.3% over three years, as well as 30.9% over five years. These moves may have shifted how the market views its potential and risks.
• Recent coverage around Texas Capital Bancshares has focused on its position in the US regional banking sector and ongoing interest in bank stocks generally, which helps frame these share price moves. That context is important because sentiment around banks can change quickly based on funding conditions, credit quality and capital strength.
• On our checks, Texas Capital Bancshares currently holds a valuation score of 3 out of 6. This suggests some metrics flag potential undervaluation while others look more balanced. Next we will look at the usual valuation tools before finishing with a way to read the valuation that goes beyond just the numbers.

Approach 1: Texas Capital Bancshares Excess Returns Analysis

The Excess Returns model asks a simple question: Are shareholders projected to earn more than the required return on their equity, and if so, how much is that worth today per share?

For Texas Capital Bancshares, the model starts with a Book Value of US$75.28 per share and a Stable EPS estimate of US$8.54 per share, based on weighted future Return on Equity estimates from 11 analysts. The implied Average Return on Equity is 9.63%, while the Cost of Equity is US$6.19 per share. That gap translates into an Excess Return of US$2.35 per share, which is the value created after covering the required shareholder return.

The analysis also uses a Stable Book Value of US$88.71 per share, using weighted future Book Value estimates from 10 analysts, to project how those excess returns may compound over time. Combining these inputs, the Excess Returns model arrives at an intrinsic value of about US$154.64 per share.

Against the recent share price of around US$104, this implies the stock is 32.5% undervalued on this approach.

Result: UNDERVALUED

Our Excess Returns analysis suggests Texas Capital Bancshares is undervalued by 32.5%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.

Approach 2: Texas Capital Bancshares Price vs Earnings

For a profitable bank like Texas Capital Bancshares, the P/E ratio is a useful way to gauge what the market is paying for each dollar of earnings. A higher or lower P/E usually reflects what investors expect for future earnings and how much risk they see in those earnings.

Growth expectations and perceived risk both influence what looks like a “normal” P/E. Faster, more predictable earnings often justify a higher multiple, while more uncertain or slower earnings typically line up with a lower multiple.

Texas Capital Bancshares currently trades on a P/E of 14.73x. That sits above the Banks industry average of about 11.90x, but below the broader peer group average of 22.62x. Simply Wall St’s Fair Ratio for Texas Capital Bancshares is 12.97x. This represents its proprietary view of what the P/E should be after weighing factors such as earnings growth, profit margins, size, industry and key risks.

Compared with simple peer or industry averages, the Fair Ratio is more tailored to the company’s specific profile. Since the current P/E of 14.73x is higher than the Fair Ratio of 12.97x, this approach points to the stock trading above what the model views as a fair level.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Texas Capital Bancshares Narrative

Earlier we mentioned that there is an even better way to think about valuation, and on Simply Wall St this comes through Narratives, where you set out your story for Texas Capital Bancshares, link it to a financial forecast on the Community page, and see a Fair Value that updates as new information such as earnings, guidance or analyst targets comes in. This means you can easily compare that Fair Value with the current price and decide what to do, whether you see Texas Capital Bancshares closer to the more optimistic view with a Fair Value around US$105.62 based on higher margins and a future P/E near 12.63x, or closer to the cautious view near US$79 that puts more weight on risks like regional concentration, digital competition and regulatory costs, or somewhere in between.

Do you think there's more to the story for Texas Capital Bancshares? 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.