SRBK

We rate SR Bancorp, Inc. (SRBK) as a Reduce with a composite score of 49.5/100 at a current price of $16.77. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in stability (85th percentile) and momentum (77th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (26th percentile) and value (29th percentile) tempers our overall conviction. We assign a No Moat rating (24/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends; balance sheet deleveraging progress; valuation compression risk if growth disappoints. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

SR Bancorp, Inc. holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 49.5/100 places it at rank #2079 in our full 7,333-stock universe. At $131M in market capitalization, SR Bancorp, Inc. is a small-cap player in the Finance, Insurance, And Real Estate space, which limits certain scale advantages but may allow for more agile strategic execution.

Despite positive momentum (77th percentile), revenue contraction of -6% creates a divergence between price action and fundamental trajectory. This divergence suggests either that the market is looking through near-term weakness or that technical factors are temporarily inflating the stock. Investors should assess whether the revenue decline reflects cyclical weakness or structural challenges.

The margin cascade tells an important story: gross margins of 44% (-33.0pp vs sector) narrow to operating margins of 14% (-2.7pp vs sector) and net margins of 11.3%, yielding a gross-to-net conversion rate of 26%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $16.77, SR Bancorp, Inc. is trading at a premium to fundamental value. Our value factor score of 29/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at a P/E of 37.7x (a 216% premium to the sector median of 11.9x), EV/EBITDA of 29.8x (at a premium), P/B of 0.7x, P/S of 4.3x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Medium uncertainty rating to SR Bancorp, Inc.. The stock presents a balanced risk profile: significant leverage (507% debt-to-equity) and low beta of 0.28 — while defensive, this may indicate limited upside participation in bull markets. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: significant leverage (507% debt-to-equity); low beta of 0.28 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 85th percentile and quality factor at the 36th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 44% provide a buffer against cost pressures; above-average stability (85th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate SR Bancorp, Inc.'s capital allocation as Poor. Key concerns include low returns on equity (1.8%), elevated leverage (507% D/E), weak asset returns (ROA 0.3%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — SR Bancorp, Inc. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, SR Bancorp, Inc. receives a Reduce rating with a composite score of 49.5/100 (rank #2079 of 7,333). Our quantitative framework assigns a No Moat (24/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 50/100.

Our analysis does not support a constructive view on SR Bancorp, Inc. at this time. The combination of limited competitive advantages, medium uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.