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OneSavings Bank PLC (+0.4%) & Virgin Money Holdings (UK) PLC (-13.4%) Should Continue To Outperform Barclays PLC (-34.7%)

Everyone likes an underdog, which is just one of the reasons why the UK’s top challenger banks Virgin Money (LSE: VM) and OneSavings Bank (LSE: OSB) have outperformed almost all of their larger peers since beginning their lives as public companies back in 2014.

Indeed, since the end of 2015 shares in Virgin Money and OneSavings have gained 18.5% and 29.7% respectively, outperforming RBS, Lloyds, HSBC and Barclays (LSE: BARC) by an average of nearly 50% excluding dividends!

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And over the past 12 months, the two challengers have continued to outperform peers such as Barclays. Since the end of April last year, Virgin Money has outperformed Barclays by more than 20%, and OneSavings has crushed its larger peer by around 32%.

It looks as if these outstanding performances are set to continue as Barclays struggles to return to growth and keep costs under control.

Set to continue 

Barclays’ shares slumped by as much as 7% at the beginning of March after it published its full-year profits for 2015, which were disappointing to say the least. 

Underlying annual profits for 2015 fell 2% to £5.4bn, and the bank went on to announce a further £1.45bn provision for PPI misselling. Moreover, alongside the results, the group declared that it would cut its dividend by more than half to 3p per share in 2016 and 2017 to save cash, and it is also planning to sell its 62.3% stake in Barclays Africa at some point during the next two years.

City analysts currently expect Barclays’ earnings per share to fall by 4% for 2016 to 16p. Next year, analysts have pencilled-in earnings per share growth of 41%. However, for the past five years, Barclays has consistently missed growth forecasts and failed to report any substantial increase in profitability. Between the end of 2011 and 2015, reported pre-tax profit more than halved and earnings per share have fallen by 9p or 35%. The bank’s shares currently trade at a forward P/E of 11.7.

On the other hand, OneSavings and Virgin Money have both racked up impressive growth rates over the past few years, and City analysts are predicting more of the same ahead.

Explosive growth 

Analysts are currently forecasting that Virgin Money’s earnings per share will be up by 6% for the 12 months to 31 December 2015. For the 12 months to 31 December 2016, earnings per share growth of 40% is expected and for 2017, earnings per share are currently expected to increase by a further 30%. Overall, the City expects that Virgin Money’s earnings per share will grow by nearly 100% over the next two years. The bank’s shares currently trade at a forward P/E of 14.8.

Meanwhile, forecasts suggest OneSavings’ earnings per share will grow 9% this year and 11% for 2017. Since 2013 OneSavings’ pre-tax profit has increased by 237%. The bank’s shares currently trade at a forward P/E of 7.8 and support a dividend yield of 3.1%.

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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.