Butterfield Bank has had an impressive run over the past six months as its shares have beaten the S&P 500 by 7.7%. The stock now trades at $44.80, marking a 23.8% gain. This run-up might have investors contemplating their next move.

Is there a buying opportunity in Butterfield Bank, 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 Butterfield Bank Not Exciting?

Despite the momentum, we don't have much confidence in Butterfield Bank. Here are three reasons we avoid NTB 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.

Butterfield Bank’s net interest income has grown at a 1.4% annualized rate over the last five years, much worse than the broader banking industry and in line with its total revenue.

2. Projected Net Interest Income Growth Shows Limited Upside

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 Butterfield Bank’s net interest income to drop by 42.5%, a decrease from its 28.3% annualized growth for the past two years. This projection is below its 28.3% annualized growth rate for the past two years.

3. Low Net Interest Margin Reveals Weak Loan Book Profitability

Net interest margin (NIM) 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 Butterfield Bank’s net interest margin averaged a poor 2.7%, indicating the company has weak loan book economics.

Final Judgment

Butterfield Bank isn’t a terrible business, but it doesn’t pass our bar. With its shares outperforming the market lately, the stock trades at 1.6× forward P/B (or $44.80 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 investments elsewhere. Let us point you toward the most dominant software business in the world.

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