Citigroup’s 23% return over the past six months has outpaced the S&P 500 by 15.3%, and its stock price has climbed to $117.72 per share. This run-up might have investors contemplating their next move.
Is there a buying opportunity in Citigroup, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Citigroup Not Exciting?
Despite the momentum, we're sitting this one out for now. Here are three reasons there are better opportunities than C and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
Citigroup’s net interest income has grown at a 6% annualized rate over the last five years, worse than the broader banking industry.
2. Low Net Interest Margin Reveals Weak Loan Book Profitability
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, we can see that Citigroup’s net interest margin averaged a poor 2.4%. This metric is well below other banks, signaling its loans aren’t very profitable.
3. Substandard TBVPS Growth Indicates Limited Asset Expansion
We consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation.
To the detriment of investors, Citigroup’s TBVPS grew at a tepid 6.1% annual clip over the last two years.
Final Judgment
Citigroup isn’t a terrible business, but it doesn’t pass our bar. With its shares topping the market in recent months, the stock trades at 1× forward P/B (or $117.72 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere. We’d suggest looking at a top digital advertising platform riding the creator economy.
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