OceanFirst Financial has been treading water for the past six months, recording a small return of 2.4% while holding steady at $18.18. The stock also fell short of the S&P 500’s 9.7% gain during that period.

Is now the time to buy OceanFirst Financial, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think OceanFirst Financial Will Underperform?

We're swiping left on OceanFirst Financial for now. Here are three reasons you should be careful with OCFC and a stock we'd rather own.

1. Net Interest Income Points to Soft Demand

Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.

OceanFirst Financial’s net interest income has grown at a 1.9% annualized rate over the last five years, much worse than the broader banking industry and slower than its total revenue.

2. Net Interest Margin Dropping

Net interest margin (NIM) represents how much a bank earns in relation to its outstanding loans. It's one of the most important metrics to track because it shows how a bank's loans are performing and whether it has the ability to command higher premiums for its services.

Over the past two years, OceanFirst Financial’s net interest margin averaged 2.8%. Its margin also contracted by 41.3 basis points (100 basis points = 1 percentage point) 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 that OceanFirst Financial either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.

3. EPS Trending Down

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

Sadly for OceanFirst Financial, its EPS declined by 5.1% annually over the last five years while its revenue grew by 3.2%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

We cheer for all companies supporting the economy, but in the case of OceanFirst Financial, we’ll be cheering from the sidelines. With its shares underperforming the market lately, the stock trades at 0.6× forward P/B (or $18.18 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. Let us point you toward one of our top software and edge computing picks.

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