Chances are you’ve never heard of Bank of Internet (BOFI). Chances are also that you can guess what they are -- an internet-based bank. Largely unnoticed by investors due to their size and lack of analyst coverage, I believe that Bank of Internet is undervalued at current levels.
Founded in 2000, Bank of Internet is a nationwide savings bank operating primarily over the internet. The bank, FDIC insured, generates retail deposits in all 50 states and originates loans for their customers directly through their websites. Their mission is to lower the cost of banking. By utilizing the internet, they have been able to just that.
At first look, Bank of Internet may not look undervalued at all, actually quite the contrary with a P/E of 19. Banking stocks generally have low P/E’s. Also, most banks pay out dividends as well, something the Bank of Internet does not do. By these metrics, they are expensive. It isn’t until you take a look at their quarterly earnings reports and their balance sheet that their value shines through.
The first thing that should stand out are their year over year growth rates. In the past year, net income has increased 46% and deposits are up 25%. Try to find similar YoY growth at traditional banks -- it won't happen. With an increasing number of people feeling safer on the internet, more and more are transfering their money to online banks, both for their lower rates and ease of use. As Bank of Internet continues to establish themselves as a trustworthy web-based bank, they are very well positioned to grow quicker than their peers.
Also note that BOFI is currently trading below its book value. Last exchanging hands at $7.20, their book value per share is $7.60.
As I have only recently discovered this company, I am not going to issue a recommendation just yet. However, I am going to suggest that you take a look. While their P/E is higher than that of the larger bankers, their growth rates are significantly higher. They are well positioned to see similar year over year growth rates in the future, all the while, trading below book value.
Given the limited knowledge that I have on this company, I would have to say that they are undervalued at curent levels. So do your own research, if you find anything noteworthy please feel free to leave a comment.
BOFI 1-yr chart:
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