Index removal puts Axos Financial in focus

Axos Financial (AX) has come under closer watch after being dropped from the Russell 2000 Dynamic Index, a shift that can prompt trading changes as index-tracking funds rebalance their portfolios.

The Russell 2000 Dynamic Index exit arrives at a time when Axos Financial’s recent momentum has been positive, with a 30 day share price return of 14.58% and a 1 year total shareholder return of 18.95%, alongside a very large 3 year total shareholder return.

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With Axos Financial posting solid recent returns and trading at $98.94 against an analyst price target of $111, plus an indicated intrinsic discount of 57.71%, the question is whether there is still a buying opportunity here or if the market is already pricing in future growth.

Most Popular Narrative: 10.9% Undervalued

With Axos Financial closing at $98.94 against a narrative fair value of $111, the current setup hinges on how much weight you give to its growth and margin story under a 7.23% discount rate.

Axos is primed to benefit from the increasing consumer shift toward digital and mobile banking platforms, which supports ongoing expansion of its digital deposit base and enables strong account and loan growth at lower operating costs, positively impacting both revenue and net margins.

Want to see what is sitting behind that upbeat projection for Axos Financial? The narrative focuses on compound revenue gains, firm profit margins and a future earnings multiple that assumes the bank keeps scaling efficiently. Curious which specific growth and profitability assumptions have to land for $111 to hold up?

Result: Fair Value of $111 (UNDERVALUED)

However, Axos Financial’s reliance on interest income and exposure to riskier lending areas like commercial real estate, equipment leasing and lender finance could pressure margins if credit conditions worsen.

Next Steps

With both risks and rewards on the table for Axos Financial, this is a good time to review the underlying data and pressure test the assumptions yourself, then weigh the 4 key rewards and 1 important warning sign.

Looking for more Axos Financial style investment ideas?

Before you move on, use this momentum with Axos Financial as a springboard to line up your next moves. Otherwise, you may risk leaving potentially stronger ideas on the table.

• Target potential mispricing by reviewing companies that look cheap on quality and valuation through the 41 high quality undervalued stocks
• Strengthen your core holdings by focusing on companies with sturdy finances using the solid balance sheet and fundamentals stocks screener (47 results)
• Hunt for future leaders with strong fundamentals that the market has not fully focused on yet via the screener containing 19 high quality undiscovered gems

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.