German American Bancorp trades at $42.23 per share and has stayed right on track with the overall market, gaining 10.8% over the last six months. At the same time, the S&P 500 has returned 11.5%.
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Why Is German American Bancorp Not Exciting?
We don't have much confidence in German American Bancorp. Here are three reasons why GABC doesn't excite us and a stock we'd rather own.
1. Projected Efficiency Ratio Falls Short
Topline growth alone doesn't tell the complete story - the profitability of that growth shapes actual earnings impact. Banks track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.
Investors place greater emphasis on efficiency ratio movements than absolute values, understanding that expense structures reflect revenue mix variations. Lower ratios represent better operational performance since they show banks generating more revenue per dollar of expense.
For the next 12 months, Wall Street expects German American Bancorp to maintain its trailing one-year ratio with a projection of 51.2%, an unexciting forecast given stock prices follow profits in rational markets.
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
German American Bancorp’s EPS grew at a weak 5.3% compounded annual growth rate over the last five years, lower than its 11.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. TBVPS Growth Demonstrates Strong Asset Foundation
For banks, tangible book value per share (TBVPS) is a crucial metric that measures the actual value of shareholders’ equity, stripping out goodwill and other intangible assets that may not be recoverable in a worst-case scenario.
Although German American Bancorp’s TBVPS increased by a meager 1.5% annually over the last five years, the good news is that its growth has recently accelerated as TBVPS grew at a decent 11.6% annual clip over the past two years (from $16.12 to $20.08 per share).
Final Judgment
German American Bancorp isn’t a terrible business, but it doesn’t pass our bar. That said, the stock currently trades at 1.3× forward P/B (or $42.23 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.
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