Should You Invest in Axos Financial (AX)?

Gator Capital Management, an asset management company, recently released its first-quarter investor letter. A copy of the same can be downloaded here. The fund trailed the broader benchmarks in the first quarter while outperformed the financials sector benchmark. Gator Financial Partners returned 1.72% in the quarter compared to 7.50% for the S&P 500 Total Return Index and -5.92% for the S&P 1500 Financials Index. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.

Gator Capital Management highlighted stocks Axos Financial, Inc. (NYSE:AX) in the first quarter 2023 investor letter. Headquartered in Las Vegas, Nevada, Axos Financial, Inc. (NYSE:AX) provides banking and financing services. On June 9, 2023, Axos Financial, Inc. (NYSE:AX) stock closed at $41.52 per share. One-month return of Axos Financial, Inc. (NYSE:AX) was 13.44%, and its shares gained 10.90% of their value over the last 52 weeks. Axos Financial, Inc. (NYSE:AX) has a market capitalization of $2.454 billion.

Gator Capital Management made the following comment about Axos Financial, Inc. (NYSE:AX) in its first quarter 2023 investor letter:

“A second but higher risk opportunity is in select regional banks. Coming into March, regional banks were already at the low end of their long-term valuation range. In March, the regional bank index declined 29%, and many well-run regional banks declined more than the index. We admit there are many new negatives for regional banks in the aftermath of the Bank Crisis. Still, we think they have become too cheap and have the potential to outperform as we get clarity on the going forward business model.

We see four new negatives for regional banks: 1) uninsured deposits will decline unless deposit insurance limits are increased, 2) banks will operate with higher liquidity going forward, 3) deposit repricing is accelerating, and 4) regulatory uncertainty is high.

Despite these four new negative issues for banks, we believe regional bank stock prices have overshot to the downside. We estimate these four issues will cause a 10% decline in earnings, which is not bad compared to a 30% decline in stock prices. We believe the banks will be able to overcome some of these negatives with wider spreads on loans going forward. We believe we must focus on the best management teams that have shown the ability to grow while maintaining discipline on expenses.

Some banks we have identified include Axos Financial, Inc. (NYSE:AX), United Missouri Bank, Webster Financial, and Pinnacle Financial. These banks are strong performers and don’t have the same problems that SIVB and others had with their bond portfolios. These banks have strong deposit franchises and have posted strong loan growth for many years. We believe they will be able to balance the demands of the new banking environment and post strong results.”

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Axos Financial, Inc. (NYSE:AX) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held Axos Financial, Inc. (NYSE:AX) at the end of first quarter 2023 which was 14 in the previous quarter.

We discussed Axos Financial, Inc. (NYSE:AX) in another article and shared FPA Queens Road Small Cap Value Fund’s views on the company. In addition, please check out our hedge fund investor letters Q1 2023 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.