Shareholders of Triumph Financial would probably like to forget the past six months even happened. The stock dropped 20.7% and now trades at $62.56. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Triumph Financial, 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.

Even though the stock has become cheaper, we're cautious about Triumph Financial. Here are three reasons why there are better opportunities than TFIN and a stock we'd rather own.

Markets consistently prioritize net interest income growth over fee-based revenue, recognizing its superior quality and recurring nature compared to the more unpredictable non-interest income streams.

Triumph Financial’s net interest income has grown at a 6.4% annualized rate over the last five years, slightly worse than the broader bank industry and in line with its total revenue. 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 shrank throughout that period.

Revenue is a fine reference point for banks, but net interest income and margin are better indicators of business quality for banks because they’re balance sheet-driven businesses that leverage their assets to generate profits.

Over the past two years, Triumph Financial’s net interest margin averaged 6.9%. However, its margin contracted from 7.8% to 6.6% over that period.

This decline was a headwind for its net interest income. While prevailing rates are a major determinant of net interest margin changes over time, the decline could mean Triumph Financial either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for Triumph Financial, its EPS declined by 19.4% annually over the last five years while its revenue grew by 6.7%. This tells us the company became less profitable on a per-share basis as it expanded.

Triumph Financial isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 1.7× forward P/B (or $62.56 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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