Over the past six months, National Bank Holdings’s stock price fell to $36.54. Shareholders have lost 17% of their capital, which is disappointing considering the S&P 500 has climbed by 5.3%. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in National Bank Holdings, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is National Bank Holdings Not Exciting?

Even though the stock has become cheaper, we don't have much confidence in National Bank Holdings. Here are three reasons why you should be careful with NBHC and a stock we'd rather own.

1. Revenue Growth Flatlining

Long-term growth is the most important, but within financials, a stretched historical view may miss recent interest rate changes and market returns. National Bank Holdings’s recent performance shows its demand has slowed as its revenue was flat over the last two years. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

2. Net Interest Margin Dropping

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, National Bank Holdings’s net interest margin averaged 3.9%. However, its margin contracted by 24 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 National Bank Holdings either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.

3. Efficiency Ratio Expected to Falter

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.

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 National Bank Holdings to become less profitable as it anticipates an efficiency ratio of 62.4% compared to 57.6% over the past year.

Final Judgment

National Bank Holdings isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 1× forward P/B (or $36.54 per share). Investors with a higher risk tolerance might like the company, but 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 the most dominant software business in the world.

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