Stellar Bancorp has been treading water for the past six months, holding steady at $29.34.
Is there a buying opportunity in Stellar Bancorp, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Stellar Bancorp Will Underperform?
We don't have much confidence in Stellar Bancorp. Here are three reasons why you should be careful with STEL and a stock we'd rather own.
1. Revenue Growth Flatlining
Long-term growth is the most important, but within financials, a stretched historical view may miss recent interest rate changes and market returns. Stellar Bancorp’s recent performance shows its demand has slowed significantly as its revenue was flat over the last two years. 
Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
2. Efficiency Ratio Expected to Falter
Topline growth alone doesn't tell the complete story - the profitability of that growth shapes actual earnings impact. Banks track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.
Investors place greater emphasis on efficiency ratio movements than absolute values, understanding that expense structures reflect revenue mix variations. Lower ratios represent better operational performance since they show banks generating more revenue per dollar of expense.
For the next 12 months, Wall Street expects Stellar Bancorp to become less profitable as it anticipates an efficiency ratio of 69% compared to 63.3% over the past year.
3. Steady Increase in TBVPS Highlights Solid Asset Growth
In the banking industry, tangible book value per share (TBVPS) provides the clearest picture of shareholder value, as it focuses on concrete assets while excluding intangible items that may not hold value during challenging times.
Although Stellar Bancorp’s TBVPS declined at a 3.7% annual clip over the last five years. the good news is that its growth inflected positive over the past two years as TBVPS grew at a solid 13.1% annual clip (from $15.60 to $19.94 per share).
Final Judgment
Stellar Bancorp doesn’t pass our quality test. That said, the stock currently trades at 0.9× forward P/B (or $29.34 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at the most entrenched endpoint security platform on the market.
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