Banking company Wintrust Financial surged to a price of $73.97 Friday, marking a 3.6% change. In comparison the S&P 500 moved only -0.0%. WTFC is -14.41% below its average analyst target price of $86.42, which implies there is more upside for the stock. As such, the average analyst rates it at buy.
Wintrust Financial's trailing 12 month P/E ratio is 8.3, based on its trailing EPS of $8.88. The company has a forward P/E ratio of 8.1 according to its forward EPS of $9.11 -- which is an estimate of what its earnings will look like in the next quarter.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the finance sector has an average P/E ratio of 14.34, and the average for the S&P 500 is 15.97.
The main limitation with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.
When we divide Wintrust Financial's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of 0.73. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that investors are undervaluing WTFC's growth potential .
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Wintrust Financial's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 1,375,000 | -53,449 | 1,321,551 | 23.07 |
| 2021-12-31 | 1,130,872 | -57,075 | 1,073,797 | 284.47 |
| 2020-12-31 | -518,465 | -63,646 | -582,111 | -416.41 |
| 2019-12-31 | 265,993 | -82,021 | 183,972 | n/a |
- Average free cash flow: $499.3 Million
- Average free cash flown growth rate: 63.7 %
- Coefficient of variability (the lower the better): 174.4 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in WTFC have received an annualized dividend yield of 2.0% 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.
Wintrust Financial's P/B ratio of 0.98 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock. The average P/B ratio of the Finance sector was 1.57 as of the first quarter of 2023.
Wintrust Financial is by most measures undervalued because it has a very low P/E ratio, an exceptionally low P/B ratio, and generally positive cash flows with an upwards trend. The stock has strong growth indicators because it has a a PEG ratio of less than 1 and consistent net margins with a stable trend. We hope you enjoyed this overview of WTFC's fundamentals.
