First Merchants currently trades at $37.49 per share and has shown little upside over the past six months, posting a middling return of 2.6%. The stock also fell short of the S&P 500’s 24.7% gain during that period.

Is there a buying opportunity in First Merchants, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is First Merchants Not Exciting?

We're swiping left on First Merchants for now. Here are three reasons we avoid FRME and a stock we'd rather own.

1. Revenue Growth Flatlining

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. First Merchants’s recent performance shows its demand has slowed as its revenue was flat 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. Net Interest Income Points to Soft Demand

Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.

First Merchants’s net interest income has grown at a 7.1% annualized rate over the last five years, slightly worse than the broader banking industry and in line with its total revenue. Its growth was driven by an increase in its outstanding loans as its net interest margin, which represents how much a bank earns in relation to its outstanding loan book, was flat throughout that period.

3. Net Interest Margin Dropping

The net interest margin (NIM) is a key profitability indicator that measures the difference between what a bank earns on its loans and what it pays on its deposits. This metric measures how efficiently one can generate income from its core lending activities.

Over the past two years, First Merchants’s net interest margin averaged 3.2%. Its margin also contracted by 27.3 basis points (100 basis points = 1 percentage point) over that period.

This decline was a headwind for its net interest income. While prevailing rates are a major determinant of net interest margin changes over time, the decline could mean that First Merchants either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.

Final Judgment

First Merchants isn’t a terrible business, but it isn’t one of our picks. With its shares lagging the market recently, the stock trades at 0.9× forward P/B (or $37.49 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.

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