FS Bancorp's Buybacks Signal a Golden Opportunity in Regional Banking

Let's cut to the chase: When a bank's management team is buying back shares at a clip that represents over 2% of its market cap, it's either desperate—or they've got a crystal ball. In the case of FS Bancorp (NASDAQ: FSBW), I'm betting on the latter. Here's why this $281.8 million regional banking stock is flashing a rare “buy” signal—and why investors shouldn't miss the train.

The Buyback Playbook: Confidence in Undervaluation

The numbers here are striking. On April 4, 2025, FS Bancorp greenlit a $5 million share repurchase program—tacked onto the $900,000 remaining from a prior buyback. Combined, that's $5.9 million, or 2.09% of its current market cap. That's no small move for a regional bank, and it's a clear statement: This stock is cheap, and management is acting on it.

Let's parse the math. If FS Bancorp uses the full $5.9 million to repurchase shares at today's price, it could reduce outstanding shares by roughly 2.09%. That might not sound like much, but in banking—a sector where earnings per share (EPS) is king—every basis point counts. A 2% reduction in shares could boost EPS by a similar margin without the bank earning a single extra dollar. That's pure value creation through capital allocation.

Why Now? Volatility = Opportunity

The buyback's 12-month window (expiring March 31, 2026) is no accident. Management isn't just chasing a quick fix—they're positioning for a volatile interest rate environment. Here's the genius:

• Flexibility: If the stock dips further (as rates gyrate), FS Bancorp can buy more shares at lower prices.
• Undervaluation Signal: If the bank is willing to spend 2% of its market cap to repurchase shares, it's either:
• Overvalued (unlikely, given its price-to-book ratio of ~1.2x, well below peers), or
• Confident in its intrinsic value (which is the far more compelling bet).

Dividends vs. Buybacks: A Strategic Mix for Growth

FS Bancorp isn't just buying back shares—it's also hiking dividends. But here's the key: Buybacks are the heavier lifter. While dividends provide steady income, buybacks directly shrink the share count, amplifying the impact of future earnings. For income-focused investors, this is a win-win: a 3.5% dividend yield plus the tailwind of EPS growth via share reduction.

Asymmetric Return Potential: The Cramer Edge

This isn't just about today's numbers—it's about the future. Let's say FS Bancorp's intrinsic value is $25 per share (a conservative estimate given its strong regional footprint and low nonperforming loans). If the stock trades at $18 today (as it does), the buyback program effectively acts as a floor under the stock. Every dollar spent on repurchases reduces the gap between price and value, creating asymmetric upside:

• Downside Risk: Limited, as the bank is buying its own shares at depressed levels.
• Upside: If the stock climbs to $25, investors gain over 38%—before accounting for the EPS boost from fewer shares.

The Bottom Line: Buy the Dip, Hold the Trend

FS Bancorp's buyback isn't just a corporate action—it's a blueprint for value accrual. The 2.09% market cap repurchase is a shot across the bow to investors: This stock is undervalued, and we're putting our capital where our mouth is.

Action Alert: For investors willing to ride the volatility of regional banking, FSBW is a buy here. Pair it with a stop-loss just below recent lows ($16.50), and set a price target of $22–$25. This isn't a “set it and forget it” trade—monitor the buyback pace and interest rate trends—but the asymmetry is hard to ignore.

Regional banks have taken a backseat to the FAANGs, but FS Bancorp's bold capital moves are a reminder that sometimes, the best opportunities are where the crowd isn't looking.

Cramer's Take: This isn't just a stock—it's a strategy. Back the management that's betting on its own value, and you'll be betting on yourself.