Enterprise Financial Services currently trades at $52.97 per share and has shown little upside over the past six months, posting a small loss of 3.5%. The stock also fell short of the S&P 500’s 16.4% gain during that period.

Given the weaker price action, is now a good time to buy EFSC? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free for active Edge members.

Why Does EFSC Stock Spark Debate?

Starting as a single bank in Missouri in 1988 and expanding through strategic growth, Enterprise Financial Services (NASDAQ: EFSC) is a financial holding company that offers banking, lending, and wealth management services to businesses and individuals across seven states.

Two Positive Attributes:

1. Net Interest Income Skyrockets, Fueling Growth Opportunities

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

Enterprise Financial Services’s net interest income has grown at a 18.9% annualized rate over the last five years, much better than the broader banking industry and in line with its total revenue.

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.

Enterprise Financial Services’s EPS grew at an astounding 15.4% compounded annual growth rate over the last five years. This performance was better than most banking businesses.

One Reason to be Careful:

Net Interest Margin Dropping

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, Enterprise Financial Services’s net interest margin averaged 4.2%. However, its margin contracted by 31.3 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 Enterprise Financial Services either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition. One caveat is that net interest margins can also decrease to reflect lower default risk if banks begin making more conservative loans.

Final Judgment

Enterprise Financial Services has huge potential even though it has some open questions. With its shares underperforming the market lately, the stock trades at 1× forward P/B (or $52.97 per share). Is now a good time to buy? See for yourself in our full research report, it’s free for active Edge members.

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