Our Feature article in Issue 34 of the Oddball Stocks Newsletter was about inferring the size of the "OTC discount" by comparing unlisted and listed banks.
We have noticed recently that small banks, and especially OTC-listed banks, are lagging this recovery. This may be an opportunity to replay the reopening trade that happened in liquid public banks with a set of less liquid public and private ones that are still cheap even with the same or better metrics. To give you an example, among two sets of banks that we track (NASDAQ and OTC) which were each chosen last year for cheapness, here is how they are priced relative to tangible book value.
Our sample of OTC-listed banks is 2100 bps cheaper on tangible book value than our sample of publicly traded banks despite earning a significantly higher ROE, having higher capital, having lower non-performing assets, a touch better demand deposits, and buying back more stock year over year. Note that both sets (which number a couple dozen banks each) are very small banks with average market capitalization under $500 million.
We find this really fascinating because for the first time, using sets of companies in the same industry that are highly comparable, we are demonstrating a discount that is stemming from not being public – or, conversely, from being OTC listed. If the Oddball Stocks Newsletter stands for anything, it is for harvesting this OTC valuation discount.