StockStory rates First Bancorp a hold citing weak five-year EPS growth

StockStory advises against buying First Bancorp (FBNC) following the release of its second-quarter earnings, citing a lack of confidence in the bank's long-term profitability metrics. The firm recommends investors look elsewhere for superior opportunities, specifically highlighting a dominant aerospace business with a strong acquisition strategy as a preferred alternative.

Over the past six months, First Bancorp shares have recorded a 1.7% return, holding steady at $59.25 per share. This performance lagged significantly behind the S&P 500, which gained 11.2% during the same period. The stock currently trades at a 1.4 times forward price-to-book multiple, a valuation StockStory characterizes as fair but insufficient to justify ownership given the company's fundamental shortcomings.

The analysis identifies three primary reasons for avoiding the stock, centering on the bank's ability to sustain profitable growth. Net interest income and fee-based revenue form the core of bank earnings, with the latter covering charges for banking services, credit products, wealth management, and trading activities. Despite these revenue streams, First Bancorp posted an annualized revenue growth rate of 9.8% over the last five years, a figure StockStory deems mediocre and below its standard for the banking sector.

A more significant concern is the divergence between revenue growth and earnings per share (EPS). While revenue expanded at an annualized rate of 9.8%, EPS grew at a compounded annual rate of just 4.4% over the same five-year period. This gap indicates that the company became less profitable on a per-share basis as it expanded, suggesting inefficiencies in how growth translates to shareholder value.

Return on equity (ROE), which measures bank profitability relative to shareholder equity, further underscores these concerns. First Bancorp averaged an ROE of 8.9% over the last five years, trailing the sector average of approximately 10%. For banks, superior ROE performance is essential for compounding shareholder wealth through reinvestment, share repurchases, and dividend growth. The sub-par ROE suggests First Bancorp is not generating sufficient returns on its capital base to warrant premium valuation.

StockStory concludes that First Bancorp's business quality falls short of its standards. While the current valuation is not egregious, the firm lacks faith in the company's trajectory and believes investors can find better risk-adjusted opportunities in other sectors. The recommendation is to avoid FBNC in favor of companies with more robust growth profiles and capital efficiency.