(Bloomberg) -- A monthlong pummeling has bank stocks looking historically inexpensive. And a deluge of quarterly earnings reports from key lenders over the next two weeks will help investors gauge if the sector is too cheap to ignore — or too risky to touch.

The KBW Bank Index, which fell 25% in March as a series of regional lenders collapsed, is trading at 7.8 times earnings. The index’s p/e ratio has been this low only twice in the last 12 years, according to data compiled by Bloomberg. 

So, with JPMorgan Chase & Co., Wells Fargo & Co, Citigroup Inc. and PNC Financial Services Group Inc. set to kick off the first-quarter earnings season on Friday, and a bevy of banks to follow over the ensuing weeks, investors have an opportunity to capitalize — if they can identify the lenders that are surviving the crisis better than their competitors.

“Bank earnings typically set the stage for how the rest of earnings season plays out and bank CEO commentary will be particularly important over the next week, as investors continue to gauge the probability of an upcoming recession,” David Trainer, chief executive officer of investment research firm New Constructs, wrote in a note. “Bank lending is arguably the most important component of a strong economy.”

By many measures, bank stocks look historically inexpensive. The KBW Bank Index is trading around the lowest level since November 2020. Its p/e ratio is down from over 10 times earnings two months ago and almost 20 times earnings in April 2021. And the reported price-to-book valuations for many bank stocks are below their book values, according to RBC Capital Markets analyst Gerard Cassidy.

“Sentiment in recent weeks has been abysmal, and market participants seem to be pricing in permanent profitability destruction, which we think is unlikely,” Baird analyst David George wrote in a note last week previewing bank earnings. The group’s risk-reward balance is “very attractive following panic selling,” as the shares are now “priced for catastrophe.”

The reason is simple: Bank stocks haven’t been able to rebound from the March tumult. After Silicon Valley Bank and Signature Bank collapsed last month and a consortium of large lenders had to step in to stabilize First Republic Bank, fears of a banking contagion spread. Customers pulled their deposits from small banks, with big banks suddenly perceived as safer.

“Because of the disruptions in the marketplace caused by the failures of Silicon Valley and Signature Bank, sentiment is at a low point for bank stocks,” Cassidy said.

Now, investors want to know what the deposit drain looks like. Western Alliance Bancorp, Comerica Inc. and East West Bancorp Inc., whose stocks were were hard hit by the collapses, are due to report earnings next week, while First Republic is scheduled for April 24.

“I think the biggest questions for earnings season are deposits, deposits, deposits,” Raymond James analyst Michael Rose said.

Investors will be looking for clarity on deposit flows. In particular, larger banks have benefitted from the so-called flight to quality, prompting Wells Fargo analyst Mike Mayo to say “Goliath is winning.” Disclosures around exposure to commercial real estate will also be in focus for regional lenders.

On the other side, some regional lenders may gain if deposit flows aren’t as bad as feared, Morgan Stanley analyst Manan Gosalia wrote in a note last week. However, banks that disappoint are likely to get punished in light of the longer-term risks facing the industry. 

“Everyone’s just trying to figure out what happens in the wake of this,” Rose said.

S&P 500 and Nasdaq futures were little changed by 2:30 a.m. New York time today after both underlying benchmarks rallied yesterday following data showing a slight cooling in the job market and easing inflation pressures. 

Elsewhere in corporate earnings:

--With assistance from Jessica Menton and Felice Maranz.

(Updates with US futures in last paragraph)

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