Over the past six months, Brookline Bancorp’s stock price fell to $10.36. Shareholders have lost 18.4% of their capital, which is disappointing considering the S&P 500 has climbed by 3.6%. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Brookline Bancorp, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Brookline Bancorp Not Exciting?
Despite the more favorable entry price, we're cautious about Brookline Bancorp. Here are three reasons why we avoid BRKL and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Our experience and research show the market cares primarily about a bank’s net interest income growth as one-time fees are considered a lower-quality and non-recurring revenue source.
Brookline Bancorp’s net interest income has grown at a 6.7% annualized rate over the last five years, slightly worse than the broader bank industry. This was driven by its loan growth as its net interest margin, which represents how much a bank earns in relation to its outstanding loan book, declined throughout that period.
2. Net Interest Margin Dropping
Net interest margin (NIM) represents the unit economics of a bank by measuring the profitability of its interest-bearing assets relative to its interest-bearing liabilities. It's a fundamental metric that investors use to assess lending premiums and returns.
Over the past two years, Brookline Bancorp’s net interest margin averaged 3.1%. Its margin also contracted by 27 basis points (100 basis points = 1 percentage point) over that period.
This decline was a headwind for its net interest income. While prevailing rates are a major determinant of net interest margin changes over time, the decline could mean that Brookline Bancorp either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.
3. EPS Took a Dip Over the Last Two Years
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Sadly for Brookline Bancorp, its EPS declined by 16.1% annually over the last two years while its revenue was flat. This tells us the company struggled to adjust to choppy demand.
Final Judgment
Brookline Bancorp isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 0.5× forward P/B (or $10.36 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a top digital advertising platform riding the creator economy.
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