While everyone's focused on flashy tech stocks and volatile cryptocurrencies, a silent transformation is brewing in the heartland of America. Old National Bancorp (ONB), a seemingly traditional regional bank with roots dating back to 1834, might be on the verge of a significant breakout. This isn't just about their recent positive earnings surprise – a modest 4.65% beat on EPS estimates for the first quarter of 2024 – this is about a deeper shift in their financial structure, one that most analysts seem to be overlooking.

The key lies in ONB's recent aggressive expansion, a strategy fueled by a series of strategic acquisitions. The most significant of these was the merger with First Midwest Bancorp in 2022, a move that dramatically increased their footprint across the Midwest. This expansion has been accompanied by a deliberate rebalancing of their balance sheet, a subtle shift with potentially explosive implications.

Net Invested Capital Surge

Here's the unnoticed detail: While ONB's total assets have remained relatively stable over the past year, their net invested capital has experienced a remarkable surge.

This represents a near doubling of their net invested capital in just two years.

Efficiency and Return on Assets

This isn't just about growth – it's about efficiency. ONB is generating significantly higher returns on a comparatively smaller asset base. Their return on assets (ROA), while still modest at 1.14%, has been steadily improving, indicating a more efficient utilization of their resources.

Potential for Profitability and Stock Price Appreciation

What does this mean for investors? It suggests that ONB is laying the foundation for a period of sustained profitability. They've bolstered their capital base, optimized their asset utilization, and positioned themselves for growth in a relatively stable economic environment.

Furthermore, ONB's commitment to returning value to shareholders is evident in their consistent dividend payments. They've issued dividends every year since going public in 1990, demonstrating a long-term commitment to shareholder value.

Undervaluation and Market Potential

But here's the kicker: despite these positive developments, ONB is still flying under the radar. The market hasn't fully grasped the significance of their recent transformation. Their P/E ratio, at a mere 8.627, is significantly lower than the industry average, suggesting they are undervalued.

Risks and Opportunities

Of course, there are risks associated with any investment. ONB operates in a highly competitive environment, and economic headwinds could impact their performance. But the bank's long history, conservative management approach, and strategic acquisitions point to a solid foundation for future success.

Hypothesis:

ONB's significant increase in net invested capital, coupled with their improving ROA, indicates a strong potential for future profitability and stock price appreciation.

Numbers to consider:

Net Invested Capital: Nearly doubled in the last two years. ROA: Steady improvement, currently at 1.14%. P/E Ratio: Significantly lower than industry average, suggesting undervaluation.

Historical EPS Trend

The following chart shows ONB's historical Earnings Per Share (EPS) since 2010. While there have been fluctuations, the overall trend suggests growth and resilience.

While the rest of the market chases the next big thing, astute investors might be wise to take a closer look at this "old" bank with a newly invigorated core. ONB's quiet transformation could translate into significant returns for those who recognize its potential before the rest of the market wakes up.

"Fun Fact: ONB was originally known as The Evansville Branch of the State Bank of Indiana. Imagine branding that in today's world!"