3 Reasons VLY is Risky and 1 Stock to Buy Instead

Valley National Bank has been treading water for the past six months, recording a small loss of 1.8% while holding steady at $8.96. The stock also fell short of the S&P 500’s 4.5% gain during that period.

Is now the time to buy Valley National Bank, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is Valley National Bank Not Exciting?

We're sitting this one out for now. Here are three reasons why there are better opportunities than VLY and a stock we'd rather own.

1. Revenue Tumbling Downwards

We at StockStory place the most emphasis on long-term growth, but within financials, a stretched historical view may miss recent interest rate changes, market returns, and industry trends. Valley National Bank’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 3.1% over the last two years.

Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

2. Deteriorating Efficiency Ratio

Topline growth is certainly important, but the overall profitability of this growth matters for the bottom line. For banks, we look at efficiency ratio, which is non-interest expense (salaries, rent, IT, marketing, excluding interest paid out to depositors) as a percentage of total revenue.

Investors place greater emphasis on efficiency ratio movements than absolute values, understanding that expense structures reflect revenue mix variations. Lower ratios represent better operational performance since they show banks generating more revenue per dollar of expense.

Over the last four years, Valley National Bank’s efficiency ratio has swelled by 9.9 percentage points, hitting 57.2% for the past 12 months. Said differently, the company’s expenses have increased at a faster rate than revenue, which is usually raises questions in mature industries (the exception is a high-growth company that reinvests its profits in attractive ventures).

3. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Valley National Bank, its EPS declined by 7.6% annually over the last five years while its revenue grew by 11.3%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

Valley National Bank’s business quality ultimately falls short of our standards. With its shares underperforming the market lately, the stock trades at 0.7× forward P/B (or $8.96 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere. We’d recommend looking at our favorite semiconductor picks and shovels play.

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