Analyzing First Merchants (NASDAQ:FRME) & Five Star Bancorp (NASDAQ:FSBC)

Five Star Bancorp (NASDAQ:FSBC) and First Merchants (NASDAQ:FRME) are both finance companies, but which is the superior stock? We will contrast the two companies based on the strength of their analyst recommendations, profitability, valuation, risk, earnings, institutional ownership and dividends.

Profitability

This table compares Five Star Bancorp and First Merchants’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Five Star Bancorp	25.92%	15.92%	1.45%
First Merchants	17.05%	8.86%	1.12%

Analyst Ratings

This is a breakdown of recent ratings and price targets for Five Star Bancorp and First Merchants, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Five Star Bancorp	0	3	4	0	2.57
First Merchants	0	2	3	0	2.60

Five Star Bancorp presently has a consensus price target of $45.20, indicating a potential upside of 5.83%. First Merchants has a consensus price target of $46.00, indicating a potential upside of 16.19%. Given First Merchants’ stronger consensus rating and higher probable upside, analysts plainly believe First Merchants is more favorable than Five Star Bancorp.

Risk & Volatility

Five Star Bancorp has a beta of 0.55, meaning that its share price is 45% less volatile than the S&P 500. Comparatively, First Merchants has a beta of 0.87, meaning that its share price is 13% less volatile than the S&P 500.

Insider & Institutional Ownership

46.9% of Five Star Bancorp shares are owned by institutional investors. Comparatively, 73.9% of First Merchants shares are owned by institutional investors. 21.8% of Five Star Bancorp shares are owned by insiders. Comparatively, 1.8% of First Merchants shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Dividends

Five Star Bancorp pays an annual dividend of $1.00 per share and has a dividend yield of 2.3%. First Merchants pays an annual dividend of $1.48 per share and has a dividend yield of 3.7%. Five Star Bancorp pays out 29.6% of its earnings in the form of a dividend. First Merchants pays out 47.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. First Merchants has raised its dividend for 13 consecutive years. First Merchants is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings and Valuation

This table compares Five Star Bancorp and First Merchants”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Five Star Bancorp	$255.47 million	4.10	$61.61 million	$3.38	12.64
First Merchants	$1.05 billion	2.36	$226.00 million	$3.12	12.69

First Merchants has higher revenue and earnings than Five Star Bancorp. Five Star Bancorp is trading at a lower price-to-earnings ratio than First Merchants, indicating that it is currently the more affordable of the two stocks.

Summary

First Merchants beats Five Star Bancorp on 9 of the 17 factors compared between the two stocks.

About Five Star Bancorp

Five Star Bancorp operates as the bank holding company for Five Star Bank that provides a range of banking products and services to small and medium-sized businesses, professionals, and individuals in Northern California. It accepts various deposits, such as money market accounts, noninterest-bearing and interest checking accounts, savings accounts, term certificate accounts, and time deposits. The company also offers loan products, including commercial and residential real estate loans; commercial loans; commercial land loans; farmland loans; commercial and residential construction loans; and consumer and other loans, as well as operating lines of credit. In addition, it provides debit cards; and remote deposit capture, online and mobile banking, and direct deposit services. Five Star Bancorp was founded in 1999 and is headquartered in Rancho Cordova, California.

About First Merchants

First Merchants Corporation operates as the financial holding company for First Merchants Bank that provides community banking services. The company offers a range of financial services, including time, savings, and demand deposits; and consumer, commercial, agri-business, public finance, and real estate mortgage loans. It also provides personal and corporate trust; brokerage and private wealth management; and letters of credit, repurchase agreements, and other corporate services. The company operates banking locations in Indiana, Illinois, Ohio, and Michigan counties. It also offers its services through electronic and mobile delivery channels. First Merchants Corporation was founded in 1893 and is headquartered in Muncie, Indiana.