Live Oak Bancshares: An Exciting Model, But One With Near-Term Risks

There's a lot to like about Live Oak Bancshares (NASDAQ:LOB) for the long term. Banks with high-touch service models and differentiated lending specialties typically do better than average, and Live Oak's embrace of technology-enabled banking could be a major differentiator over time. In the short term, though, I'm concerned about owning a liability-sensitive bank during a period of Fed tightening, not to mention a bank heavily leveraged to small business lending when the economy is cooling.

Valuation is interesting. My long-term discounted cash flow model suggests exciting double-digit long-term annualized total return potential, but short-term multiples-based approaches (ROTCE-driven P/TBV and P/E) are much less accommodating, with the shares trading at a premium during a period where many other growth banks (East West (EWBC), Signature Bank (SBNY), and SVB Financial (SIVB) among others) are trading at high single-digit forward P/E's.

 

Click here to continue: 

Live Oak Bancshares: An Exciting Model, But One With Near-Term Risks