Analyzing Sound Financial Bancorp (NASDAQ:SFBC) & FS Bancorp (NASDAQ:FSBW)

Sound Financial Bancorp (NASDAQ:SFBC) and FS Bancorp (NASDAQ:FSBW) are both small-cap finance companies, but which is the better business? We will compare the two businesses based on the strength of their analyst recommendations, profitability, valuation, institutional ownership, earnings, risk and dividends.

Risk and Volatility

Sound Financial Bancorp has a beta of 0.17, indicating that its stock price is 83% less volatile than the S&P 500. Comparatively, FS Bancorp has a beta of 0.74, indicating that its stock price is 26% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Sound Financial Bancorp and FS Bancorp, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Sound Financial Bancorp	0	1	0	0	2.00
FS Bancorp	0	1	1	0	2.50

FS Bancorp has a consensus price target of $44.00, indicating a potential upside of 16.77%. Given FS Bancorp’s stronger consensus rating and higher probable upside, analysts clearly believe FS Bancorp is more favorable than Sound Financial Bancorp.

Dividends

Sound Financial Bancorp pays an annual dividend of $0.76 per share and has a dividend yield of 1.7%. FS Bancorp pays an annual dividend of $1.12 per share and has a dividend yield of 3.0%. Sound Financial Bancorp pays out 31.3% of its earnings in the form of a dividend. FS Bancorp pays out 26.6% 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. Sound Financial Bancorp has raised its dividend for 2 consecutive years and FS Bancorp has raised its dividend for 12 consecutive years. FS Bancorp is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Insider and Institutional Ownership

68.9% of Sound Financial Bancorp shares are held by institutional investors. Comparatively, 63.9% of FS Bancorp shares are held by institutional investors. 12.6% of Sound Financial Bancorp shares are held by insiders. Comparatively, 12.7% of FS Bancorp shares are held by insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Earnings & Valuation

This table compares Sound Financial Bancorp and FS Bancorp”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Sound Financial Bancorp	$62.03 million	1.85	$4.64 million	$2.43	18.42
FS Bancorp	$206.39 million	1.39	$35.02 million	$4.21	8.95

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

Profitability

This table compares Sound Financial Bancorp and FS Bancorp’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Sound Financial Bancorp	10.02%	6.05%	0.60%
FS Bancorp	15.88%	11.32%	1.09%

Summary

FS Bancorp beats Sound Financial Bancorp on 14 of the 17 factors compared between the two stocks.

About Sound Financial Bancorp

Sound Financial Bancorp, Inc. operates as the bank holding company for Sound Community Bank that provides banking and other financial services for consumers and businesses. It accepts various deposits products comprising savings, money market deposit, NOW, and demand accounts, as well as certificates of deposit. The company also offers loans secured by first and second mortgages on one-to four-family residences; home equity loans, including fixed-rate loans and variable-rate lines of credit; commercial and multifamily real estate loans; construction loans secured by single-family residences, and commercial and multifamily real estate; land loans; commercial business loans to finance commercial vehicles and equipment, as well as loans secured by accounts receivable and/or inventory; and secured and unsecured consumer loans, such as new and used manufactured homes, floating homes, automobiles, boats, and recreational vehicle loans, and loans secured by deposit accounts. The company was founded in 1953 and is headquartered in Seattle, Washington.

About FS Bancorp

FS Bancorp, Inc. operates as a bank holding company for 1st Security Bank of Washington that provides banking and financial services to local families, local and regional businesses, and industry niches. The company operates in two segments, Commercial and Consumer Banking; and Home Lending. It offers various deposit instruments, including checking accounts, money market deposit accounts, savings accounts, and certificates of deposit. The company provides one-to-four-family residential first mortgages, second mortgage/home equity loan products, non-mortgage commercial business loans, commercial real estate loans, and construction and development loans, as well as consumer loans, which primarily include personal lines of credit, credit cards, automobile, direct home improvement, loans on deposit, and recreational loans. It operates full bank service branches and home loan production offices in suburban communities in the greater Puget Sound area, including Snohomish, King, Pierce, Jefferson, Kitsap, Clallam, Grays Harbor, and Thurston counties; and a loan production office in the market area of the Tri-Cities. FS Bancorp, Inc. was founded in 1936 and is headquartered in Mountlake Terrace, Washington.