3 Reasons to Avoid TCBI and 1 Stock to Buy Instead

Since December 2024, Texas Capital Bank has been in a holding pattern, posting a small return of 1.6% while floating around $78.96.

Is there a buying opportunity in Texas Capital Bank, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Texas Capital Bank Not Exciting?

We're swiping left on Texas Capital Bank for now. Here are three reasons why you should be careful with TCBI and a stock we'd rather own.

1. Net Interest Income Points to Soft Demand

While banks generate revenue from multiple sources, investors view net interest income as the cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of non-interest income.

Texas Capital Bank’s net interest income has grown at a 3.1% annualized rate over the last four years, worse than the broader bank industry. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.

2. Low Net Interest Margin Reveals Weak Loan Book Profitability

Revenue is a fine reference point for banks, but net interest income and margin are better indicators of business quality for banks because they’re balance sheet-driven businesses that leverage their assets to generate profits.

Over the past two years, we can see that Texas Capital Bank’s net interest margin averaged a subpar 3.1%. This metric is well below other banks, signaling its loans aren’t very profitable.

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 Texas Capital Bank, its EPS declined by 21.5% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Final Judgment

Texas Capital Bank isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 1.1× forward P/B (or $78.96 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

High-Quality Stocks for All Market Conditions

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.