Even though SouthState (currently trading at $99.58 per share) has gained 6.4% over the last six months, it has lagged the S&P 500’s 16.6% return during that period. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy SouthState, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is SouthState Not Exciting?
We’re sitting this one out for now. Here are three reasons we avoid SSB, plus one stock we’d rather own.
1. 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 SouthState’s net interest income to rise by 3.4%, a deceleration versus its 28.5% annualized growth for the past two years. This projection is below its 28.5% annualized growth rate for the past two years.
2. Efficiency Ratio Expected to Falter
The underlying profitability of top-line growth determines the actual bottom-line impact. Banking institutions measure this dynamic using the efficiency ratio, which is calculated by dividing non-interest expenses like personnel, facilities, technology, and marketing by 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 SouthState to become less profitable as it anticipates an efficiency ratio of 52.7% compared to 50.2% over the past year.
3. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
SouthState’s EPS grew at an unimpressive 6.5% compounded annual growth rate over the last five years, lower than its 13.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
SouthState isn’t a terrible business, but it doesn’t pass our quality test. With its shares trailing the market in recent months, the stock trades at 1× forward P/B (or $99.58 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. We’d suggest looking at a dominant aerospace business that has perfected its M&A strategy.
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