FFIN Edges Closer to 52 Week Low.

Regional Banking company First Financial Bankshares is taking Wall Street by surprise today, falling to $39.76 and marking a -7.5% change compared to the S&P 500, which moved 0.6%. FFIN is -9.12% below its average analyst target price of $43.75, which implies there is more upside for the stock. However, the average analyst rating for the stock is hold -- a more pessimistic outlook than you might expect. Over the last year, First Financial Bankshares shares have outstripped the S&P 500 by 3.6%, with a price change of -15.8%.

First Financial Bankshares, Inc., through its subsidiaries, provides commercial banking products and services in Texas. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.

First Financial Bankshares's trailing 12 month P/E ratio is 24.7, based on its trailing Eps of $1.61. The company has a forward P/E ratio of 22.6 according to its forward Eps of $1.76 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the financial services sector has an average P/E ratio of 13.34, and the average for the S&P 500 is 15.97.

To better understand FFIN’s valuation, we can divide its price to earnings ratio by its projected five-year growth rate, which gives us its price to earnings, or PEG ratio. Considering the P/E ratio in the context of growth is important, because many companies that are undervalued in terms of earnings are actually overvalued in terms of growth.

First Financial Bankshares’s PEG is 2.62, which indicates that the company is overvalued compared to its growth prospects. Bear in mind that PEG ratios have limits to their relevance, since they are based on future growth estimates that may not turn out as expected.

To get a sense of the company's long term profitability and market position, we can analyze its operating margins, which are the ratio of its net profits to its revenues. Over the last four years, First Financial Bankshares's operating margins have averaged 50.7% and displayed a mean growth rate of 3.1%. These numbers show that the company has a relatively strong footing.

To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in First Financial Bankshares's free cash flow, which was $334,026,000.00 as of its most recent annual report. Over the last 4 years, the company's average free cash flow has been $222,682,500.00 and they've been growing at an average rate of 29.0%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in FFIN have received an annualized dividend yield of 1.4% on their capital.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). First financial bankshares's P/B ratio is 4.2 -- in other words, the market value of the company exceeds its book value by a factor of more than 4, so the company's assets may be overvalued compared to the average P/B ratio of the Financial Services sector, which stands at 1.95 as of the third quarter of 2022.

Since it has an inflated P/E ratio, an elevated P/B ratio, and a steady stream of strong cash flows with an upwards trend, First Financial Bankshares is likely fairly valued at today's prices. The company has mixed growth indicators because of an above average PEG ratio and strong and consistent operating margins that are growing. We hope you enjoyed this overview of FFIN's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

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The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.