3 Reasons WABC is Risky and 1 Stock to Buy Instead

Westamerica Bancorporation currently trades at $48.62 per share and has shown little upside over the past six months, posting a small loss of 5%. The stock also fell short of the S&P 500’s 15.9% gain during that period.

Is now the time to buy Westamerica Bancorporation, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Westamerica Bancorporation Not Exciting?

We don't have much confidence in Westamerica Bancorporation. Here are three reasons why WABC doesn't excite us and a stock we'd rather own.

1. Net Interest Income Points to Soft Demand

Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.

Westamerica Bancorporation’s net interest income has grown at a 6.5% annualized rate over the last five years, slightly worse than the broader banking industry and in line with its total revenue.

2. Net Interest Income Projections Show Stormy Skies Ahead

Forecasted net interest income by Wall Street analysts signals a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Westamerica Bancorporation’s net interest income to drop by 8.9%, a decrease from its 7% annualized declines for the past two years. This projection is slightly below its 7% annualized declines for the past two years.

3. Efficiency Ratio Expected to Falter

Topline growth is certainly important, but the overall profitability of this growth matters for the bottom line. For banks, we look at efficiency ratio, which is non-interest expense (salaries, rent, IT, marketing, excluding interest paid out to depositors) as a percentage of total revenue.

Investors focus on efficiency ratio changes rather than absolute levels, understanding that expense structures vary by revenue mix. Counterintuitively, lower efficiency ratios indicate better performance since they represent lower costs relative to revenue.

For the next 12 months, Wall Street expects Westamerica Bancorporation to become less profitable as it anticipates an efficiency ratio of 40.2% compared to 37.5% over the past year.

Final Judgment

Westamerica Bancorporation’s business quality ultimately falls short of our standards. With its shares lagging the market recently, the stock trades at 1.3× forward P/B (or $48.62 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.

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