Simmons First National trades at $21.30 and has moved in lockstep with the market. Its shares have returned 11.8% over the last six months while the S&P 500 has gained 9.8%.
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Why Do We Think Simmons First National Will Underperform?
We're sitting this one out for now. Here are three reasons there are better opportunities than SFNC and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
Simmons First National’s net interest income has grown at a 2.4% annualized rate over the last five years, much worse than the broader banking industry and in line with its total revenue.
2. Efficiency Ratio Expected to Falter
Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.
Markets emphasize efficiency ratio trends over static measurements, recognizing that revenue compositions drive different expense bases. Lower efficiency ratios signal superior performance by indicating that banks are controlling costs effectively relative to their income.
For the next 12 months, Wall Street expects Simmons First National to become less profitable as it anticipates an efficiency ratio of 57.1% compared to 40% over the past year.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Simmons First National, its EPS declined by 6.7% annually over the last five years while its revenue grew by 1.9%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Simmons First National falls short of our quality standards. That said, the stock currently trades at 0.8× forward P/B (or $21.30 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at one of our top software and edge computing picks.
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