VLY Surges 6.02%. Let's Take a Closer Look at its Valuation.

Valley National Bancorp (VLY) stock climbed 6.02 % this afternoon. According to our metrics, the company seems undervalued at today's prices. Valley National Bancorp has an average rating of buy and target prices ranging from $15.5 to $12.0. At its current price of $10.65, the company is trading -21.94% away from its target price of $13.65. 3% of the company's shares are linked to short positions, and 73% of the shares are owned by institutional investors.

Valley National Bancorp is the parent company of Valley National Bank offering various commercial, retail, insurance and wealth management financial services products. The mid-cap Finance company is based in New York, United States.

VLY's P/E Ratio Is Better Than the Sector Average

Compared to the Finance sector's average of 14.34, Valley National Bancorp has a trailing twelve month price to earnings (P/E) ratio of 9.43 and an expected P/E ratio of 7.15. P/E ratios are calculated by dividing the company's share price by its trailing 12 month or forward earnings per share, which stand at $1.13 and $1.49 respectively.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Valley National Bancorp's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.

Valley National Bancorp Is Overvalued in Terms of Expected Growth

Valley National Bancorp's PEG ratio is 3.32. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Valley National Bancorp's case, it tells us the company is overvalued.

VLY Has an Attractive P/B Ratio

During the mid-twentieth century, value investors such as Ben Graham focused primarily on finding companies that were trading below the book value of its equity. This means companies whose market value is lower than the book value, or the sum of all of its tangible assets minus liabilities. Undervalued companies generally have a price to book (P/B) ratio below 1, and Valley National Bancorp is no exception since its P/B ratio is 0.939.

In modern times, it is increasingly rare to find companies with low P/B ratios that the equity market is avoiding without reason. Ironically, such a low P/B ratio should alert prospective investors to the existence of qualitative factors that could be contributing to its low valuation. Should no such factors exist, or if the investor is of the pure-value profile, then of course such a low P/B ratio should be added to the positive side of the stock's ledger.

VLY Is Generating Cash

Valley National Bancorp has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 86.22%, compared to 25.75% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 97.74% and a coefficient of variability of 91%:

Date Reported Cash Flow from Operations (k) Capital Expenditures (k) Free Cash Flow (k) YoY Growth
2022-12-31 $1,428,479 $68,935 $1,359,544 70.43%
2021-12-31 $837,142 $39,428 $797,714 474.08%
2020-12-31 $163,561 $24,607 $138,954 -41.75%
2019-12-31 $261,923 $23,375 $238,548 -14.04%
2018-12-31 $303,956 $26,440 $277,516 n/a
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.