East West Bank’s 20.8% return over the past six months has outpaced the S&P 500 by 13.7%, and its stock price has climbed to $123.34 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now still a good time to buy EWBC? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does East West Bank Spark Debate?
As the largest independent bank in the U.S. focused on bridging financial services between America and Asia, East West Bancorp (NASDAQ:EWBC) operates a commercial bank that provides personal and business banking services with a unique focus on facilitating U.S.-Asia cross-border transactions.
Two Positive Attributes:
1. Net Interest Income Drives Additional Growth Opportunities
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
East West Bank’s net interest income has grown at a 13.9% annualized rate over the last five years, a step above the broader banking industry and in line with its total revenue. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
East West Bank’s EPS grew at 17.9% compounded annual growth rate over the last five years, higher than its 13.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
One Reason to be Careful:
Low Net Interest Margin Hinders Flexibility
Net interest margin (NIM) represents how much a bank earns in relation to its outstanding loans. It's one of the most important metrics to track because it shows how a bank's loans are performing and whether it has the ability to command higher premiums for its services.
Over the past two years, we can see that East West Bank’s net interest margin averaged a subpar 3.4%. This metric is well below other banks, signaling its loans aren’t very profitable.
Final Judgment
East West Bank’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 1.7× forward P/B (or $123.34 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
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