Over the past six months, Westamerica Bancorporation’s shares (currently trading at $46.46) have posted a disappointing 5.5% loss, well below the S&P 500’s 13.7% gain. This may have investors wondering how to approach the situation.

Is now the time to buy Westamerica Bancorporation, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

Why Is Westamerica Bancorporation Not Exciting?

Despite the more favorable entry price, we're swiping left on Westamerica Bancorporation for now. Here are three reasons there are better opportunities than WABC and a stock we'd rather own.

1. 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.

Westamerica Bancorporation’s net interest income has grown at a 6.8% annualized rate over the last five years, slightly worse than the broader banking industry.

2. Net Interest Income Projections Show Stormy Skies Ahead

Forecasted net interest income by Wall Street analysts signals a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Westamerica Bancorporation’s net interest income to drop by 11%, close to its 10.6% annualized declines for the past two years.

3. Net Interest Margin Dropping

Net interest margin (NIM) serves as a critical gauge of a bank's fundamental profitability by showing the spread between interest income and interest expenses. It's essential for understanding whether a firm can sustainably generate returns from its lending operations.

Over the past two years, Westamerica Bancorporation’s net interest margin averaged 4%. However, its margin contracted by 46.7 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 Westamerica Bancorporation either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.

Final Judgment

Westamerica Bancorporation isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 1.2× forward P/B (or $46.46 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

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