Over the past six months, Citigroup has been a great trade, beating the S&P 500 by 14.1%. Its stock price has climbed to $138.48, representing a healthy 26.8% 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? Get the full stock story straight from our expert analysts, it’s free.
Why Is Citigroup Not Exciting?
We’re happy investors have made money, but we don’t have much confidence in Citigroup. Here are three reasons why there are better opportunities than C, plus one 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 one-time fees are considered a lower-quality and non-recurring revenue source.
Citigroup’s net interest income has grown at a 8% annualized rate over the last five years, worse than the broader banking industry. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book was flat throughout that period.
2. 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 it can generate income from its core lending activities.
Over the past two years, we can see that Citigroup’s net interest margin averaged a poor 2.5%, meaning it must compensate for lower profitability through increased loan originations.
3. EPS Growth Has Stalled
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Citigroup’s flat EPS over the last five years was below its 4.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Citigroup’s business quality ultimately falls short of our standards. With its shares outperforming the market lately, the stock trades at 1.2× forward P/B (or $138.48 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 pretty confident there are more exciting stocks to buy at the moment. Let us point you toward the Amazon and PayPal of Latin America.
Stocks We Like More Than Citigroup
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