Merchants Bancorp (MBIN): A Bull Case Theory

We came crossed a bullish thesis connected Merchants Bancorp connected Valueinvestorsclub.com by LDMR. In this article, we volition summarize the bulls’ thesis on MBIN. Merchants Bancorp's share was trading astatine $32.82 as of November 26th. MBIN’s trailing P/E was 7.54 according to Yahoo Finance.

Creative Lab/Shutterstock.com

Merchants Bancorp (MBIN) sits successful a uncommon presumption among U.S. banks, trading beneath publication worth contempt delivering a semipermanent mean ROE of 21% and industry-leading BVPS and EPS maturation of 27% and 25% since 2016. The disconnect stems from what look to beryllium impermanent issues, chiefly a surge successful delinquent loans tied to an unprecedented fraud strategy that affected galore lenders.

Although this raises questions astir oversight, the losses are concentrated successful government-backed multifamily and healthcare portfolios, limiting semipermanent damage. Founders Michael Petrie and Randall Rogers, who inactive ain ~40% of the company, person a decades-long way grounds of entering capital-constrained niches similar owe warehousing and scaling high-ROE businesses built connected originate-to-sell lending. Their multifamily conception unsocial precocious posted an bonzer 11.6% ROA, translating into triple-digit ROE erstwhile levered, driven by gain-on-sale economics and credit-transfer tools that heighten superior efficiency.

While delinquency headlines person pressured sentiment, MBIN continues to make important pre-tax, pre-provision earnings, providing a cushion to sorb losses portion remaining profitable. As provisioning normalizes implicit the adjacent 12–24 months, ROE could instrumentality to the mid-teens and yet backmost toward 20%, restoring the company’s humanities show profile. At 0.9x publication and astir 4–5x normalized earnings, the banal embeds overly pessimistic assumptions.

If publication worth compounds toward $60 by 2028 and the marketplace assigns adjacent a humble 1.5x multiple—below its humanities median—shares could attack $90, representing a imaginable triple successful 3 years. With founders nearing retirement, a aboriginal merchantability besides remains a tenable upside scenario. While MBIN’s complex, high-velocity lending exemplary carries inherent “black box” risks, its net power, aligned ownership, and impermanent quality of existent issues make an charismatic risk/reward arsenic delinquency solution becomes the cardinal catalyst.

Previously we covered a bullish thesis on Bank OZK by Ryan Hess successful November 2024, which highlighted its disciplined RESG lending model, beardown profitability, and semipermanent maturation execution. The company's banal terms has depreciated astir by 6.75% since our coverage. This is due to the fact that macro concerns astir operation lending weighed connected sentiment. The thesis inactive stands arsenic its risk-adjusted returns stay resilient. LDMR shares a akin presumption connected Merchants Bancorp but emphasizes its niche high-ROE model.