With an average analyst rating of hold, CrossFirst Bankshares is clearly not a favorite. But some of the best stock picks are contrarian in nature. With most analysts more focused on growth than on value, a mediocre analyst rating does not necessarily mean a stock is a bad investment. So what do we know about CFB's valuation?
Let's start our value analysis with the price to book (P/B) ratio. This is perhaps the most basic measure of a company's valuation, which is its market value divided by its book value. Book value refers to the sum of all of the company's tangible assets minus its liabilities -- you can also think of it as the company's equity value.
Traditionally, value investors would look for companies with a ratio of less than 1 (meaning that the market value was smaller than the company's book value), but such opportunities are very rare these days. So we tend to look for company's whose valuations are less than their sector and market average. The P/B ratio for CrossFirst Bankshares is 0.99, compared to its sector average of 1.58 and the S&P500's average P/B of 2.95.
The most common metric for valuing a company is its Price to Earnings (P/E) ratio. It's simply today's stock price of 12.85 divided by either its trailing or forward earnings, which for CrossFirst Bankshares are $1.23 and $1.4 respectively. Based on these values, the company's trailing P/E ratio is 10.4 and its forward P/E ratio is 9.2. By way of comparison, the average P/E ratio of the Finance sector is 12.38 and the average P/E ratio of the S&P 500 is 15.97.
When we had up all the inflows and outflows of cash, including payments to creditors, we obtain CrossFirst Bankshares's levered free cash flow of $82.02 Million. This represents the money left over from the company's operations that is available for reinvestment in the business, or for paying out to equity investors in the form of a dividend. Despite its positive cash flows, CrossFirst Bankshares does not currently pay a dividend.
Shares of CrossFirst Bankshares appear to be fairly valued or undervalued at today's prices -- despite the negative outlook from analysts. Sometimes stocks are cheap for a reason, so remember that just because a stock is fairly valued does not necessarily mean it will go up. So be sure to do your own due diligence if you are interested in taking a long position in CFB.
