Although City Holding (currently trading at $121.40 per share) has gained 11.4% over the last six months, it has trailed the S&P 500’s 27.9% return during that period. This might have investors contemplating their next move.
Find out in our full research report, it’s free for active Edge members.
Why Does CHCO Stock Spark Debate?
With roots dating back to 1957 and a strategic presence along the I-64 and I-81 corridors, City Holding (NASDAQGS:CHCO) operates as a financial holding company providing banking, trust, and investment services through its subsidiary City National Bank across West Virginia, Kentucky, Virginia, and Ohio.
Two Things to Like:
1. Elite Net Interest Margin Powers Best-In-Class Loan Book
Net interest margin (NIM) represents the unit economics of a bank by measuring the profitability of its interest-bearing assets relative to its interest-bearing liabilities. It's a fundamental metric that investors use to assess lending premiums and returns.
Over the past two years, we can see that City Holding’s net interest margin averaged an excellent 3.9%, indicating the company has a high-yielding loan book and a low cost of funds.
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
City Holding’s EPS grew at an astounding 12.8% compounded annual growth rate over the last five years, higher than its 4.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
In general, banks make money from two primary sources. The first is net interest income, which is interest earned on loans, mortgages, and investments in securities minus interest paid out on deposits. The second source is non-interest income, which can come from bank account, credit card, wealth management, investing banking, and trading fees.
Over the last five years, City Holding grew its revenue at a mediocre 4.7% compounded annual growth rate. This wasn’t a great result compared to the rest of the banking sector, but there are still things to like about City Holding.
Final Judgment
City Holding has huge potential even though it has some open questions. With its shares lagging the market recently, the stock trades at 2.2× forward P/B (or $121.40 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free for active Edge members.
Stocks We Like Even More Than City Holding
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