STEL

We rate Stellar Bancorp, Inc. (STEL) as a Hold with a composite score of 55.8/100 at a current price of $37.92. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in momentum (76th percentile) and stability (53th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (34th percentile) and quality (34th percentile) tempers our overall conviction. We assign a Narrow Moat rating (42/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends; balance sheet deleveraging progress. 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.

Stellar 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 55.8/100 places it at rank #1166 in our full 7,333-stock universe. At $1.6B in market capitalization, Stellar 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 (76th percentile), revenue contraction of -99% 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 0% (-76.5pp vs sector) narrow to operating margins of 2209% (+2191.6pp vs sector) and net margins of 1758.8%, yielding a gross-to-net conversion rate of N/A%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $37.92, Stellar Bancorp, Inc. is trading near fair value based on current fundamentals. Our value factor score of 51/100 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. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 17.8x (a 49% premium to the sector median of 11.9x), EV/EBITDA of 12.2x (at a premium), P/B of 1.2x, P/S of 313.9x. 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 Stellar Bancorp, Inc.. The stock presents a balanced risk profile: significant leverage (543% debt-to-equity) and weak quality scores (34th percentile). 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 (543% debt-to-equity); weak quality scores (34th percentile). 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 53th percentile and quality factor at the 34th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our medium uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate Stellar Bancorp, Inc.'s capital allocation as Poor. Key concerns include elevated leverage (543% D/E), weak asset returns (ROA 1.0%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Stellar 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, Stellar Bancorp, Inc. receives a Hold rating with a composite score of 55.8/100 (rank #1166 of 7,333). Our quantitative framework assigns a Narrow Moat (42/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 50/100.

Our analysis supports a neutral stance on Stellar Bancorp, Inc.. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.