Reviewing Five Star Bancorp (NASDAQ:FSBC) and Preferred Bank (NASDAQ:PFBC)

Preferred Bank (NASDAQ:PFBC) and Five Star Bancorp (NASDAQ:FSBC) are both small-cap finance companies, but which is the superior stock? We will compare the two businesses based on the strength of their dividends, valuation, institutional ownership, analyst recommendations, profitability, risk and earnings.

Valuation and Earnings

This table compares Preferred Bank and Five Star Bancorp”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Preferred Bank	$522.66 million	2.75	$130.66 million	$9.84	10.11
Five Star Bancorp	$213.40 million	3.77	$45.67 million	$2.70	13.95

Preferred Bank has higher revenue and earnings than Five Star Bancorp. Preferred Bank is trading at a lower price-to-earnings ratio than Five Star Bancorp, indicating that it is currently the more affordable of the two stocks.

Dividends

Preferred Bank pays an annual dividend of $3.00 per share and has a dividend yield of 3.0%. Five Star Bancorp pays an annual dividend of $0.80 per share and has a dividend yield of 2.1%. Preferred Bank pays out 30.5% of its earnings in the form of a dividend. Five Star Bancorp pays out 29.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Preferred Bank has raised its dividend for 5 consecutive years. Preferred Bank is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Preferred Bank and Five Star Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Preferred Bank	25.67%	16.91%	1.82%
Five Star Bancorp	23.18%	13.88%	1.32%

Insider & Institutional Ownership

72.8% of Preferred Bank shares are held by institutional investors. Comparatively, 46.9% of Five Star Bancorp shares are held by institutional investors. 25.6% of Five Star Bancorp shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Preferred Bank and Five Star Bancorp, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Preferred Bank	0	2	2	1	2.80
Five Star Bancorp	0	2	5	0	2.71

Preferred Bank currently has a consensus price target of $104.67, suggesting a potential upside of 5.25%. Five Star Bancorp has a consensus price target of $39.40, suggesting a potential upside of 4.62%. Given Preferred Bank’s stronger consensus rating and higher possible upside, analysts plainly believe Preferred Bank is more favorable than Five Star Bancorp.

Risk and Volatility

Preferred Bank has a beta of 0.74, suggesting that its share price is 26% less volatile than the S&P 500. Comparatively, Five Star Bancorp has a beta of 0.52, suggesting that its share price is 48% less volatile than the S&P 500.

Summary

Preferred Bank beats Five Star Bancorp on 13 of the 18 factors compared between the two stocks.

About Preferred Bank

Preferred Bank provides various commercial banking products and services to small and mid-sized businesses and their owners, entrepreneurs, real estate developers and investors, professionals, and high net worth individuals. The company accepts checking, savings, and money market deposit accounts; fixed-rate and fixed maturity retail, and non-retail certificates of deposit; and individual retirement accounts. It also provides real estate mortgage loans that are secured by retail, industrial, office, special purpose, and residential single and multi-family properties; real estate construction loans; commercial loans comprising lines of credit for working capital, term loans for capital expenditures, and commercial and stand-by letters of credit; and small business administration loans. In addition, the company offers trade finance services, including commercial and export letters of credit, import lines of credit, documentary collections, international wire transfers, acceptances/trust receipt financing products, export financing, and bills purchase programs. Further, it provides cash management services; and internet, mobile, and tablet banking services. The company operates through full-service branch offices in the California counties of Los Angeles, Orange and San Francisco; Flushing, New York; Houston suburb of Sugar Land, Texas; and a satellite office in Manhattan, New York. The company was incorporated in 1991 and is headquartered in Los Angeles, California.

About Five Star Bancorp

Five Star Bancorp operates as the bank holding company for Five Star Bank that provides a range of banking products and services to small and medium-sized businesses, professionals, and individuals in Northern California. It accepts various deposits, such as money market accounts, noninterest-bearing and interest checking accounts, savings accounts, term certificate accounts, and time deposits. The company also offers loan products, including commercial and residential real estate loans; commercial loans; commercial land loans; farmland loans; commercial and residential construction loans; and consumer and other loans, as well as operating lines of credit. In addition, it provides debit cards; and remote deposit capture, online and mobile banking, and direct deposit services. Five Star Bancorp was founded in 1999 and is headquartered in Rancho Cordova, California.