ASX bank stocks tumbled in March as conflict in the Middle East intensified, inflation figures rose and the Reserve Bank hiked interest rates again.
After strong share price rallies last year, particularly from the big four major banks, there are now concerns that ASX bank shares are overpriced and overvalued.
Now it looks like the sector could be due for a sharp correction.
There is only one ASX bank stock I'd keep in my portfolio right now: Judo Capital Holdings Ltd (ASX: JDO).
Here are a few reasons why.
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The ASX bank stock stands apart from the rest
Unlike the major Australian banks, Judo Bank provides tailored financial services and lending to small and medium enterprises (SMEs) with annual turnovers of up to $100 million.
Its business lending starts at $250,000, and it also offers personal term deposit products and home loans.
The bank has a niche focus in the SME market, an area which is typically underserved by major banks.
It also tends to earn higher margins on business loans versus the major banks. For example, for the first half of FY26, Judo reported a net interest margin (NIM) on its business loans of 3.03%, and this is projected to increase to 3.15% in the second half of the financial year. Meanwhile, major lender National Australia Bank, reported a NIM of 1.8% in the same period.
Momentum is strong
Judo Bank had a strong start to FY26. At its latest AGM, it said lending momentum was strong over the first quarter and that it's confident it can achieve FY26 guidance of $180-$190 million.
Guidance was confirmed again when it posted its first-half FY26 results in mid-February.
The bank posted a 32% hike in statutory NPAT to $59.9 million. Its profit before tax hiked 53% on the prior corresponding period, to $86.5 million and its cost-to-income ratio improved.
The bank also confirmed it had delivered above system growth in gross loans and advances, up 7% since June to $13.4 billion, and up 15% year-on-year.
The bank also said it expects operating leverage to improve further in the second half of FY26.
Analysts are bullish
At the time of writing on Wednesday morning, Judo Bank shares are 1.3% higher at $1.36 a piece. The shares have tumbled 18% over the past month, in line with the rest of the financial sector and other ASX bank stocks. Judo Bank shares are down 26% over the past year.
Analysts aren't concerned, though, and 12 out of 13 analysts still hold a buy or strong buy rating on the shares.
The average target price is $2.22, which implies a 63% upside at the time of writing. Some are even more bullish and expect the share price to jump 84% to $2.50 each.
