- If you are wondering whether 1st Source at US$66.12 is offering fair value or a potential mispricing, it helps to frame the recent share performance against what the business may be worth.
- The stock has seen a 2.0% decline over the last 7 days and a 6.2% decline over the last 30 days, while the year to date return is 5.9% and the 1 year return is 8.9%, with 3 year and 5 year returns of 62.0% and 61.7% respectively.
- These moves have come as investors continue to assess 1st Source in the context of broader US regional banking sentiment and company specific developments that shape expectations for growth, risk, and income potential. While there has not been a single headline driving short term moves, ongoing sector discussion around funding costs, credit quality, and capital strength helps frame how the market is pricing the shares.
- On Simply Wall St's valuation model, 1st Source scores 5 out of 6 checks for being undervalued, giving it a valuation score of 5. The sections that follow will break this down across different valuation approaches and then look at a more complete way to think about what this score really means for you.
Find out why 1st Source's 8.9% return over the last year is lagging behind its peers.
Approach 1: 1st Source Excess Returns Analysis
The Excess Returns model looks at how much profit a company is expected to earn over and above the return that equity investors require, then capitalizes those extra profits into a per share value. It is less about short term earnings and more about what 1st Source can earn on its equity over time versus its cost of equity.
For 1st Source, the model uses a Book Value of US$52.32 per share and a Stable EPS of US$6.91 per share, based on the median return on equity from the past 5 years. The Average Return on Equity is 11.45%, while the Cost of Equity is US$4.21 per share. That leaves an Excess Return of US$2.70 per share, which is then applied to a Stable Book Value of US$60.36 per share, sourced from weighted future book value estimates from 3 analysts.
Simply Wall St's Excess Returns valuation points to an intrinsic value of about US$135.98 per share, implying the stock is 51.4% undervalued relative to the recent price of US$66.12.
Result: UNDERVALUED
Our Excess Returns analysis suggests 1st Source is undervalued by 51.4%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.
Approach 2: 1st Source Price vs Earnings
For profitable companies like 1st Source, the P/E ratio is a useful shorthand because it links what you pay for each share to the earnings that support that share. It helps you see how much the market is willing to pay for each dollar of profit.
What counts as a reasonable P/E usually reflects two things: how quickly earnings might grow and how uncertain those earnings are. Higher expected growth or lower perceived risk can justify a higher multiple, while slower growth or higher risk can point to a lower one.
1st Source currently trades on a P/E of 10.26x. That sits below the Banks industry average of 11.15x and also below the peer group average of 13.23x. Simply Wall St’s Fair Ratio for 1st Source is 10.43x, which is a proprietary view of what the P/E “should” be given factors such as earnings profile, margins, size, industry and risk characteristics. This Fair Ratio can be more tailored than a simple comparison with industry or peers because it tries to adjust for the company’s own fundamentals rather than just broad group averages. With the current P/E of 10.26x very close to the Fair Ratio of 10.43x, the shares look roughly in line with that model.
Result: ABOUT RIGHT
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Upgrade Your Decision Making: Choose your 1st Source Narrative
Earlier it was mentioned that there is an even better way to understand valuation, so this is where Narratives come in as a simple way to connect your view of 1st Source with the numbers behind it.
A Narrative is your story of the company, where you set out what you think could happen to revenue, earnings and margins, then link that to a fair value that you can compare with today’s share price.
On Simply Wall St’s Community page, Narratives are presented as an easy tool that ties a company’s story to a financial forecast and a fair value. They update automatically as new news or earnings arrive and help you decide whether the current price looks above or below your own fair value range.
For 1st Source, one investor might build a Narrative that points to a much higher fair value, while another might land on a lower figure based on more cautious assumptions. Seeing those side by side can help you decide which story fits your own view.
Do you think there's more to the story for 1st Source? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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