We came across a bullish thesis on VersaBank (VBNK) on Chief’s Substack by Chief Inspector. In this article, we will summarize the bulls’ thesis on VBNK. VBNK Technologies, Inc. share was trading at $13.03 as of Sept 27th. VBNK’s trailing and forward P/E were 9.98 and 7.47 respectively according to Yahoo Finance.

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VersaBank (VBNK) is a Canadian digital bank that has transformed from its original form as Pacific and Western Credit Corporation. Under CEO David Taylor and with support from the George family, the bank shifted its focus to an innovative Receivables Purchase Program. VersaBank works with point-of-sale financiers who handle loan approvals. VersaBank then buys these loans, keeping a small percentage (4-15%) as a reserve. This approach has been very reliable, with no credit losses even during the COVID-19 pandemic.

Over the past five years, VersaBank’s net income has grown by 19% annually, and its net interest income by 15% annually.The bank does not deal directly with retail customers as 83% of its deposits come from wealth management firms parking client cash in insured CDs, and 17% from insolvency professionals managing liquidation processes. This specialized deposit base helps VersaBank avoid high customer service costs and reduces liquidity and interest rate risks. A major growth driver is VersaBank’s planned expansion into the U.S. market by acquiring Stearns Bank, which will give it a U.S. banking license helping it generate higher net interest margins in the United States than in Canada.

Despite its strong performance and growth potential, VersaBank’s stock is undervalued due to low trading liquidity, misunderstandings about its credit risk model, and a shift away from higher-yielding real estate loans. However, significant insider ownership (46.19%) and a commitment to share repurchases show management’s focus on increasing shareholder value. With the expected U.S. expansion and potential sale of its cybersecurity division, VersaBank looks like a promising investment in the growing BNPL sector with a forward P/E ratio of 6.9x for 2025 and a price-to-tangible book value of 1.15x.

VersaBank is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 2 hedge fund portfolios held VBNK at the end of the second quarter which was 3 in the previous quarter. While we acknowledge the risk and potential of VBNK as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VBNK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.