With Axos Financial trading at US$98.89, you might be asking whether the recent share price sits above, below, or roughly in line with what the business could be worth.

The stock has returned 2.7% over the last 7 days, 19.2% over the past 30 days, 13.2% year to date and 54.7% over the last year, so price moves have been meaningful enough to make valuation a front of mind question.

Alongside these returns, Axos Financial has been in the spotlight through ongoing coverage of its position in the US banking sector and how investors are treating bank stocks that focus on digital platforms and niche lending models. This context helps explain why the market has been paying closer attention to how Axos earns its money, manages risk and funds growth.

Simply Wall St's valuation model currently gives Axos Financial a value score of 4 out of 6. The next sections will walk through what different valuation methods say about the stock and finish with a framework that can help you judge whether that score fits your own view of value.

Approach 1: Axos Financial Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to earn above the return that equity investors typically require, and then capitalizes those extra profits into an intrinsic value per share.

For Axos Financial, the model starts with a Book Value of $51.70 per share and a Stable EPS of $11.51 per share, based on the median return on equity from the past 5 years. The Cost of Equity is estimated at $4.26 per share, which implies an Excess Return of $7.26 per share. That excess is supported by an Average Return on Equity of 18.88% and a Stable Book Value assumption of $60.98 per share, using weighted future book value estimates from 3 analysts.

Using these inputs, the Excess Returns valuation produces an intrinsic value estimate of about $264.41 per share. Compared with the current share price of $98.89, this represents a 62.6% discount. On this basis, the model indicates that Axos Financial appears significantly undervalued.

Result: UNDERVALUED

Our Excess Returns analysis suggests Axos Financial is undervalued by 62.6%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

Approach 2: Axos Financial Price vs Earnings

For a profitable bank, the P/E ratio is a useful way to link what you pay per share to the earnings that support that price. It gives you a quick sense of how many dollars investors are currently paying for each dollar of earnings.

What counts as a “normal” or “fair” P/E depends on how the market views a company’s growth prospects and risk. Higher expected growth or lower perceived risk can justify a higher multiple, while slower expected growth or higher perceived risk often lines up with a lower P/E.

Axos Financial currently trades on a P/E of 12.27x. That sits above the broader Banks industry average of 11.61x, but below the peer group average of 13.09x. Simply Wall St’s “Fair Ratio” for Axos is 14.87x, which is its proprietary estimate of what the P/E might be given factors such as earnings growth, profit margins, industry, market cap and company specific risks.

This Fair Ratio goes further than a simple comparison against peers or the industry because it tries to adjust for Axos Financial’s own characteristics rather than assuming all banks should trade on the same multiple. On this basis, the Fair Ratio of 14.87x sits above the current 12.27x P/E, which points to the shares looking undervalued on this metric.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Axos Financial Narrative

Earlier there was a mention that there is an even better way to understand valuation, so Narratives are a simple way for you to set out the story you believe about Axos Financial, link that story to a forecast for revenue, earnings and margins, and then see what fair value that story implies, all within the Narratives section of the Simply Wall St Community that is used by millions of investors.

Each Narrative connects three things: the business story, the numbers that express that story, and the fair value those numbers support. Because the tool updates when new earnings, news or estimates arrive, your view stays current without you having to rebuild a model from scratch.

For Axos Financial, one investor might build a Narrative similar to the analyst consensus, where revenue reaches about US$2.0b, earnings are US$687.8m with EPS of US$11.63 by 2029 and a P/E of 11.2x. A more cautious investor might instead plug in lower revenue and margin assumptions and a different P/E. Each investor can then compare their own fair value to the current share price to decide whether the stock looks expensive, cheap or fairly priced for their view.

Do you think there's more to the story for Axos Financial? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.