Is Arrow Financial Corp. overvalued or undervalued?

As of 11 February 2025, Arrow Financial Corp. has moved from a fair to an expensive valuation grade. The company is currently considered overvalued, with a P/E ratio of 20, which is significantly higher than its peers like Banco Latinoamericano de Comercio Exterior SA, which has a P/E of 7.50, and QCR Holdings, Inc. with a P/E of 9.46. Additionally, Arrow's EV to EBITDA stands at 7.58, while its peers generally reflect lower multiples, indicating a premium valuation relative to the industry.
The company's ROCE is notably high at 25.99%, but its ROE is relatively modest at 7.01%. With a price-to-book value of 1.38 and a dividend yield of 3.29%, the metrics suggest that while Arrow Financial Corp. may offer some returns, the current valuation does not justify the risk, especially given its recent underperformance compared to the S&P 500 over various time frames.