Even though QCR Holdings (currently trading at $77.81 per share) has gained 5.4% over the last six months, it has lagged the S&P 500’s 15.5% return during that period. This might have investors contemplating their next move.
Is now the time to buy QCR Holdings, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is QCR Holdings Not Exciting?
We're cautious about QCR Holdings. Here are three reasons we avoid QCRH 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. QCR Holdings’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.
3. High Interest Expenses Increase Risk
Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.
Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.
This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.
New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.
Over the last two years, QCR Holdings has averaged a Tier 1 capital ratio of 10%, which is considered unsafe in the event of a black swan or if macro or market conditions suddenly deteriorate. For this reason alone, we will be crossing it off our shopping list.
Final Judgment
QCR Holdings isn’t a terrible business, but it doesn’t pass our bar. With its shares trailing the market in recent months, the stock trades at 1.2× forward P/B (or $77.81 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.
Stocks We Like More Than QCR Holdings
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