By October 2027, $5,000 invested in this ASX bank stock could turn into…

ASX bank stocks have been in the spotlight over the past month as rising inflation, higher interest rates, and a cooling property market raise concerns about how the banks could perform over the long run.

The experts are pretty reserved about the outlook for the big four major banks, and most mid-tier ones too. Most are expected to fall lower over the next 12 months as macroeconomic pressures increase.

But there is one ASX bank stock with a very rosy outlook ahead.

Judo Capital Holdings Ltd (ASX: JDO) works differently to its peers. Unlike many other banks in the sector, Judo Bank was built to provide financial services and lending to small and medium enterprises (SMEs). These SMEs have annual turnovers of up to $100 million.

The bank was founded in 2016 and received its banking license in 2019. That means it’s relatively new in comparison to the majors. It was listed on the ASX in 2021.

The bank provides business lending starting at $250,000 and touts itself as providing more flexibility than major banks. It also offers personal term deposit products and home loans.

What’s the latest out of Judo Bank shares?

At the time of writing, the ASX bank stock is trading at 90 cents a piece. That’s around 50% lower for the year to date and 49% lower than this time last year.

The shares suffered a crash of around 40% within one day of trading in late June. This happened after the bank downgraded its profit guidance for FY26. The move left investors questioning the bank’s near-term outlook.

But the final result in August seemed to be a little better than expected. Judo Bank announced strong gains across the board. NPAT increased 29% to $111.1 million, and profit before tax increased 34% to $168.1 million. This was at the top end of Judo’s revised guidance range.

Investors rushed to the stock, and the share spiked by around 16% following the announcement. But then a slump in overall sentiment for bank shares and profit-taking investors has seen those gains reversed over the past seven weeks.

What do brokers tip next for the ASX bank stock?

It looks like the sell-off was way overdone, and the shares are now trading well below fair value.

Brokers are very bullish on the outlook for Judo Bank shares, with the majority holding a strong buy rating, according to Market Index data. The average $1.38 target price currently implies around a 52% potential upside over the next 12 months, at the time of writing.

TradingView data shows something similar. Again, the majority (12 out of 14) have a buy/strong buy rating. The $1.485 average target price implies an upside of around 64%, at the time of writing.

But some think the shares could jump another 86% to $1.68 each over the next 12 months.

Morgans has a buy rating and $1.42 target price on the bank shares.

The broker said Judo’s results were towards the top end of the revised guidance range, and FY27 guidance was reaffirmed, offering strong earnings growth. But it thinks that by the end of this decade, Judo Bank shares could be worth close to $2 per share. 

The bank is higher risk and more cyclically exposed than the major banks, but investors are compensated by higher potential returns at current prices. 

Elsewhere, the team at Macquarie said the question is whether the bank can strike the right balance between margins, growth, and credit quality to achieve returns at scale. Macquarie has a price target of $1.65 on Judo shares.

So, if I invest $5,000 into Judo Bank shares today, what could it be worth by this time next year?

Assuming Judo Bank shares reach the average forecast target price of $1.38 to $1.48 within the next 12 months, a $5,000 investment today could be worth $7,600 to $8,200 by October 2027.

And if the more bullish experts are correct. The same $5,000 investment could climb even higher, up to $9,300, by this time next year.

The post By October 2027, $5,000 invested in this ASX bank stock could turn into… appeared first on The Motley Fool Australia.

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Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.