EQB Inc Stock: Buy, Sell, or Hold

EQB Inc (TSX:EQB) is Canada’s fastest-growing bank.

| More on:
Dice engraved with the words buy and sell

Image source: Getty Images.

EQB (TSX:EQB) is one of Canada’s fastest-growing banks. Known as “Canada’s challenger bank,” it operates on a 100% online model with no branches. This business model gives EQB certain advantages over other banks. For example, it has lower staff and other overhead costs. Over the years, EQB has grown far faster than the Canadian banking sector has. It has pretty respectable profit margins as well.

Despite its many advantages, EQB does not have anywhere near the level of name recognition that the big six banks do. That’s a shame because it has more going for it than many of those banks do. There are risks as well, though. In this article, I will explore some reasons for buying, selling and/or holding EQB stock so you can decide whether it’s a fit for your portfolio.

The case for buying

The case for buying EQB stock can be built on its growth and profitability. In its most recent fiscal year, EQB delivered the following:

  • $838 million in net interest income (NII), up 14.3%
  • $550 million in cash, up 10%
  • $32 billion in deposits, up 3.2%
  • $9.59 in earnings per share (EPS), up 27%

It was a pretty phenomenal quarter. EQB grew far quicker than any of the Big Six banks did in their most recent fiscal years. Despite this, EQB trades at just 7.5 times earnings, which is cheaper than any of the Big Six banks.

The case for selling

A case for selling EQB Inc can be built on some potential adverse future scenarios. Although EQB has a high liquidity coverage ratio (340% the last time I looked it up), that’s mainly because 95% of its deposits are Guaranteed Investment Certificates (GICs). It actually only has about 10% of its deposits covered by highly liquid assets (cash and treasuries). So, if EQB’s deposit mix were to shift to more checking and savings accounts, it could run out of cash to pay depositors with.

The case for holding

A case for holding EQB can be built on the company’s cash flows. According to an online source, EQB trades at 80 times cash flow despite having a 7.5 price-to-earnings ratio. This suggests that the company’s earnings aren’t well supported by cash flows. Some say that cash flows aren’t all that relevant for banks, because they are always lending out money; this makes cash outflows desirable. Maybe so, but you’d want to see healthy cash flows from operations at least some of the time. So, EQB’s cash flows and cash position are slight negatives.

Foolish bottom line

On the whole, I think that EQB is a pretty good company. I don’t own any EQB stock, but I’d be comfortable owning it. The company’s heavily GIC-based deposit mix helps ensure that it won’t suffer a bank run, and its high growth and margins leaves it with plenty of opportunities to re-invest in itself. EQB doesn’t have the highest dividend yield among Canadian banks, but it has more room to grow than its competitors do. On the whole, its reputation as “Canada’s challenger bank” is well deserved.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends EQB. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Technology
Dividend Stocks

10 Years From Now, You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks

The TSX is lucrative to buy these magnificent dividend stocks in bulk and be proud of this decision 10 years…

Read more »

calculate and analyze stock
Dividend Stocks

4 Fabulous Dividend Stocks to Buy in July

Are you looking for long-term income? These four dividend stocks should not only provide you with value in July but…

Read more »

financial freedom sign
Dividend Stocks

5 Steps to Financial Freedom for Canadian Millennials

Follow these steps and nothing can stop Canadian millennials from achieving their early retirement dreams.

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

We’re Only Getting Older: A Top TSX Stock That Benefits From an Aging Population

For a bet on the aging population, consider this small-cap stock with growth potential.

Read more »

Growing plant shoots on coins
Dividend Stocks

Yield Today, Growth Tomorrow: 3 Stocks to Keep Building Your Wealth

For investors seeking yield today and growth tomorrow, these top Canadian dividend stocks are certainly worth considering right now.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 10.72% Dividend Stock Pays Cash Every Month

This dividend stock remains a consistent, defensive dividend producer that will give up over 10% in income each and every…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA Investors: 2 Standout Domestic Stocks With 7% Yields

These top dividend-growth stocks look oversold.

Read more »

Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Despite their recent declines, the long-term growth outlook of these two top dividend stocks remains strong, which could help their…

Read more »