Bank OZK has been treading water for the past six months, recording a small return of 3.6% while holding steady at $45.
Given the underwhelming price action, is now a good time to buy OZK? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free.
Why Does OZK Stock Spark Debate?
Founded in 1903 and rebranded from Bank of the Ozarks in 2018, Bank OZK (NASDAQ: OZK) is a commercial bank that specializes in real estate lending while offering a full range of banking services to individuals and businesses.
Two Things to Like:
1. Net Interest Income Skyrockets, Fueling Growth Opportunities
Markets consistently prioritize net interest income growth over fee-based revenue, recognizing its superior quality and recurring nature compared to the more unpredictable non-interest income streams.
Bank OZK’s net interest income has grown at a 13.8% annualized rate over the last four years, better than the broader bank industry and faster than its total revenue.
2. Outstanding Long-Term EPS Growth
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Bank OZK’s full-year EPS grew at an astounding 19.2% compounded annual growth rate over the last five years, better than the broader bank sector.
One Reason to be Careful:
Net Interest Margin Dropping
Revenue is a fine reference point for banks, but net interest income and margin are better indicators of business quality for banks because they’re balance sheet-driven businesses that leverage their assets to generate profits.
Over the past two years, Bank OZK’s net interest margin averaged 4.8%. However, its margin contracted by 51.7 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 Bank OZK either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition. One caveat is that net interest margins can also decrease to reflect lower default risk if banks begin making more conservative loans.
Final Judgment
Bank OZK’s positive characteristics outweigh the negatives, but at $45 per share (or 0.9× forward P/B), is now the right time to buy the stock? See for yourself in our in-depth research report, it’s free.
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