Cathay General Bancorp Shares Dropped: What You Need to Know


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Los Angeles-based bank holding company Cathay General Bancorp (NAS: CATY) popped 11% this morning -- and no, it didn't report earnings.

So what: In fact, Cathay didn't do much of anything to earn the pop. It just sat there and looked pretty. Doing so, it attracted the attention of ace equities analyst RBC Capital Markets, which this morning decided to upgrade the shares to outperform.

Now what: RBC says Cathay has been "showing strong growth in commercial and industrial loans." Going forward, the analyst expects this revenue growth to translate into higher profits. If that's the way things work out, RBC predicts banking regulators could lift restrictions barring Cathay from opening new branches without preapproval -- accelerating growth even further. Best of all, RBC argues that Cathay is currently "one of the cheapest among banks based in the western U.S."

At 15 times earnings today, though, Cathay is actually priced right in line with other stocks in the "Regional-Pacific Banks" industry. If RBC is right in its analysis, the bank probably deserves a premium valuation. If it's wrong, though, I'm not so sure the bank is any better than fairly priced.

Is RBC right?Add Cathay General Bancorp to your Fool watchlistand find out.

At the time thisarticle was published Fool contributorRich Smithdoes not own (or short) shares of any company named above. The Motley Fool has adisclosure policy. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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Originally published