East West Bank has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 16.8% to $115.42 per share while the index has gained 13.3%.
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Why Is East West Bank Not Exciting?
We're cautious about East West Bank. Here are three reasons why EWBC doesn't excite us and a stock we'd rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within financials, a stretched historical view may miss recent interest rate changes and market returns. East West Bank’s recent performance shows its demand has slowed as its annualized revenue growth of 3.6% over the last two years was below its five-year trend. 
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 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, East West Bank’s net interest margin averaged 3.3%. Its margin also contracted by 25.3 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 East West Bank either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.
3. EPS Growth Has Stalled Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
East West Bank’s flat EPS over the last two years was worse than its 3.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
East West Bank isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 1.8× forward P/B (or $115.42 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Like More Than East West Bank
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