Over the past six months, Citigroup has been a great trade, beating the S&P 500 by 13.5%. Its stock price has climbed to $96.00, representing a healthy 17.8% increase. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Citigroup, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Citigroup Not Exciting?
Despite the momentum, we're cautious about Citigroup. Here are three reasons why you should be careful with C and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.
Citigroup’s net interest income has grown at a 5.3% annualized rate over the last five years, worse than the broader bank industry.
2. Projected Net Interest Income Growth Is Slim
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 Citigroup’s net interest income to stall, a slight deceleration versus its 3% annualized growth for the past two years. This projection is slightly below its 3% annualized growth rate for the past two years.
3. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin represents how much a bank earns in relation to its outstanding loans. It’s one of the most important metrics to track because it shows how a bank’s loans are performing and whether it has the ability to command higher premiums for its services.
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.
Final Judgment
Citigroup’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 0.9× forward P/B (or $96.00 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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