TFS Financial trades at $14.73 and has moved in lockstep with the market. Its shares have returned 8.2% over the last six months while the S&P 500 has gained 5%.
Is now the time to buy TFS Financial, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think TFS Financial Will Underperform?
We're cautious about TFS Financial. Here are three reasons we avoid TFSL and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
While bank generate revenue from multiple sources, investors view net interest income as a cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of one-time fees.
TFS Financial’s net interest income has grown at a 3.9% annualized rate over the last five years, much worse than the broader banking 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. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) serves as a critical gauge of a bank's fundamental profitability by showing the spread between interest income and interest expenses. It's essential for understanding whether a firm can sustainably generate returns from its lending operations.
Over the past two years, we can see that TFS Financial’s net interest margin averaged a poor 1.7%, indicating the company has weak loan book economics.
3. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
TFS Financial’s weak 2% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
TFS Financial falls short of our quality standards. That said, the stock currently trades at 2.2× forward P/B (or $14.73 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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