So why is Discover so cheap? One reason is that some analysts and investors believe the company hasn't been able to scale-up its payment processing business sufficiently for it to be a viable contender over the long term. There has even been speculation that the company could be a take-out target for one of the larger tech firms, such as Apple (AAPL), Microsoft (MSFT) and Google (GOOG), looking to boost their payment processing businesses.

But even if Discover were to be acquired, the purchase would likely feature a steep premium. So the take-out scenario is no reason not to consider the stock.

Despite the relatively low current valuation, Discover has outperformed. The shares have returned 4% this year, slightly ahead of the 3% increase for the KBW Bank Index (I:BKX). During 2013, Discover's stock had a total return of 46%, compared to a 35% return for the KBW Bank Index.

This chart shows the stock performance of Discover and State Street against the KBW Bank Index since the end of 2011:

DFS Chart data by YCharts

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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