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What to Make of BancorpSouth, Inc.'s Lagging Profits and Return on Equity

By Jay Jenkins – Jul 22, 2014 at 4:59PM

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BancorpSouth's profits and return on equity trail their peers. Is that a deal breaker for investors?

This is the second part of a three part analysis of BancorpSouth (BXS 4.49%). For part 1, click here.

When you make an equity investment, you're buying a share of that company's future earnings. That means that it is in your best interest as an investor to seek out companies with strong profitability and strong return on equity. The more efficiently the company creates profits from its assets, the higher the percentage returns on your investment. 

This is investing 101, but it can sometimes get lost in the noise of today's 24/7 news cycle.

In the video below, Motley Fool contributor Jay Jenkins tackles the profitability issue at BancorpSouth, a regional bank based in Tupelo, Mississippi. The bank is profitable, something that many banks can't say, but Jay has some concerns.

The problems start with the bank's profit margin, which lags industry averages by about 7%. As a consequence, BancorpSouth also lags its peers' return on equity -- even with an assets to equity ratio in line with industry norms. 

The profile then is of a typical bank with a traditional business model and a relatively conservative capital structure. What is it that's holding back the bank's profitability, and what does this tell investors about a possible investment in BancorpSouth?

Find out by clicking "play" below.

Jay Jenkins has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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