Axos Financial's Buyback Bonanza: Value Play or Risky Gamble?

The financial sector has long been a battleground for capital allocation strategies, and Axos Financial (NYSE: AX) is now making a bold move with its expanded $200 million stock buyback program. But does this signal confidence in undervaluation—or a desperate bid to prop up an overextended stock? Let’s dissect the metrics.

The Buyback Playbook: Boosting Metrics or Overpaying?

Axos announced the $200 million buyback in May 2025, with $150 million still available as of late April. At its current market cap of $3.26 billion, this represents a buyback yield of ~4.6% (based on the remaining $150M). This is a compelling number compared to its 3.5% dividend yield, suggesting the company prioritizes share repurchases to boost earnings per share (EPS) and return on equity (ROE).

Valuation Dynamics: A Bargain or Overvalued?

Axos trades at a P/B of 1.25 and a P/E of ~10.3, which appear reasonable compared to its historical metrics. However, this masks critical nuances:
- ROE has declined: From 20.7% in Q3 2024 to 16.4% in Q3 2025.
- Efficiency ratios are creeping up: Rising to 47.4% in Q3 2025 from 45.2% in 2024, suggesting cost pressures.

While the stock’s valuation is “cheap” by traditional metrics, the decline in profitability metrics raises a red flag. Is Axos undervalued—or is the market pricing in risks the buyback program is ignoring?

The Case for Strategic Capital Allocation

Pro-buyback arguments hinge on three pillars:
1. EPS Boost: Reducing shares outstanding (56.9 million as of March 2025) could lift diluted EPS. The company’s book value per share rose 19% year-over-year to $45.79, indicating tangible equity growth.
2. ROE Target: Axos aims for 25–30% ROE, a stretch from its current 16.4%, but achievable if buybacks offset declining margins.
3. Dividend Growth: The buyback complements its 3.5% dividend yield, offering flexibility to prioritize returns when cash flow permits.

The Risks: Overextension in a Volatile Market

1. Valuation Stretch: While P/B and P/E look “cheap,” Axos’s loan growth (up 14.5% annualized) and deposit expansion ($20.1 billion) are offset by declining net interest margins (4.78% in Q3 2025).
2. Earnings Slump: Net income dropped 5% YoY to $105.2 million, driven by higher credit provisions and expenses.
3. Macroeconomic Headwinds: Rising interest rates and a potential recession could strain credit quality (currently at 0.79% NPAs, but no margin for error).

Buyback Yield vs. Dividend: Which Wins?

The buyback’s 4.6% yield edges out the dividend, but this is a short-term gain. If the stock is overvalued, repurchases could lock in losses. Compare this to its dividend, which is stable but less impactful. The real question: Is Axos’s valuation sustainable?

Verdict: A Calculated Gamble, But Proceed with Caution

Axos’s buyback program is a double-edged sword. On one hand, it signals confidence in its $45.79 book value and operational resilience. The buyback yield outperforms dividends, and the company’s loan growth and capital ratios (15.2% Tier 1 leverage) are robust.

On the other hand, declining ROE, rising costs, and a fragile net interest margin suggest vulnerabilities. The stock’s P/B of 1.25 isn’t screaming “fire sale,” and macro risks could undercut the EPS-boosting benefits of repurchases.

Investment Merit: Axos offers a compelling near-term case if you bet on its ability to stabilize margins and ROE. However, investors should demand clear signs of profitability rebound—watch for Q4 2025 results. Until then, this is a “hold” with a cautiously optimistic bias.

In conclusion, Axos’s buyback is neither a slam-dunk value play nor a reckless gamble—it’s a strategic bet on its own valuation and execution. Proceed with the buyback yield in mind, but keep one eye on the macro horizon.