Comparing First Merchants (NASDAQ:FRME) and Five Star Bancorp (NASDAQ:FSBC)

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

Risk & Volatility

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

Analyst Recommendations

This is a summary of current ratings and recommmendations for First Merchants and Five Star Bancorp, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
First Merchants	0	2	3	0	2.60
Five Star Bancorp	0	3	3	0	2.50

First Merchants presently has a consensus target price of $46.00, suggesting a potential upside of 18.62%. Five Star Bancorp has a consensus target price of $47.25, suggesting a potential upside of 11.15%. Given First Merchants’ stronger consensus rating and higher possible upside, equities research analysts clearly believe First Merchants is more favorable than Five Star Bancorp.

Dividends

First Merchants pays an annual dividend of $1.48 per share and has a dividend yield of 3.8%. Five Star Bancorp pays an annual dividend of $1.00 per share and has a dividend yield of 2.4%. First Merchants pays out 47.4% of its earnings in the form of a dividend. Five Star Bancorp pays out 29.6% 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.

Profitability

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

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

Institutional & Insider Ownership

73.9% of First Merchants shares are owned by institutional investors. Comparatively, 46.9% of Five Star Bancorp shares are owned by institutional investors. 1.8% of First Merchants shares are owned by insiders. Comparatively, 21.8% of Five Star Bancorp shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a company is poised for long-term growth.

Valuation and Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
First Merchants	$1.05 billion	2.32	$226.00 million	$3.12	12.43
Five Star Bancorp	$176.60 million	5.91	$61.61 million	$3.38	12.58

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

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.

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.