2 Reasons to Watch UMBF and 1 to Stay Cautious

Over the past six months, UMB Financial has been a great trade, beating the S&P 500 by 5.4%. Its stock price has climbed to $120, representing a healthy 38.6% increase. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is it too late to buy UMBF? Find out in our full research report, it’s free for active Edge members.

Why Does UMB Financial Spark Debate?

With roots dating back to 1913 and a name derived from "United Missouri Bank," UMB Financial (NASDAQ:UMBF) is a financial holding company that provides banking, asset management, and fund services to commercial, institutional, and individual customers.

Two Things to Like:

1. Net Interest Income Skyrockets, Fueling Growth Opportunities

Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.

UMB Financial’s net interest income has grown at a 19.7% annualized rate over the last five years, much better than the broader banking industry and faster than its total revenue.

2. Forecasted Efficiency Ratio Shows Stronger Profits Ahead

Topline growth carries importance, but the overall profitability behind this expansion determines true value creation. For banks, the efficiency ratio captures this relationship by measuring non-interest expenses, including salaries, facilities, technology, and marketing, against total revenue.

Markets understand that a bank’s expense base depends on its revenue mix and what mostly drives share price performance is the change in this ratio, rather than its absolute value. It’s somewhat counterintuitive, but a lower efficiency ratio is better.

For the next 12 months, Wall Street expects UMB Financial to rein in some of its expenses as it anticipates an efficiency ratio of 54.9% compared to 61% over the past year.

One Reason to be Careful:

Low Net Interest Margin Reveals Weak Loan Book Profitability

The net interest margin (NIM) is a key profitability indicator that measures the difference between what a bank earns on its loans and what it pays on its deposits. This metric measures how efficiently one can generate income from its core lending activities.

Over the past two years, we can see that UMB Financial’s net interest margin averaged a poor 2.7%, reflecting its high servicing and capital costs.

Final Judgment

UMB Financial has huge potential even though it has some open questions, and with its shares beating the market recently, the stock trades at 1.3× forward P/B (or $120 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .

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