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Today I will take a look at Waterstone Financial Inc’s (NASDAQ:WSBF) most recent earnings update (30 June 2018) and compare these latest figures against its performance over the past few years, as well as how the rest of the mortgage industry performed. As an investor, I find it beneficial to assess WSBF’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
Despite a decline, did WSBF underperform the long-term trend and the industry?
WSBF’s trailing twelve-month earnings (from 30 June 2018) of US$26.9m has declined by -8.4% compared to the previous year.
Furthermore, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 15.4%, indicating the rate at which WSBF is growing has slowed down. Why could this be happening? Let’s examine what’s transpiring with margins and if the whole industry is facing the same headwind.
Over the past few years, revenue growth has been lagging behind which suggests that Waterstone Financial’s bottom line has been propelled by unmaintainable cost-reductions.
Looking at growth from a sector-level, the US mortgage industry has been growing, albeit, at a unexciting single-digit rate of 9.4% in the prior year, and a substantial 13.6% over the last five years. This growth is a median of profitable companies of 25 Mortgage companies in US including BV Financial, FSB Bancorp and Bancorp 34. This suggests that any tailwind the industry is enjoying, Waterstone Financial has not been able to reap as much as its industry peers.
In terms of returns from investment, Waterstone Financial has fallen short of achieving a 20% return on equity (ROE), recording 6.7% instead. However, its return on assets (ROA) of 1.4% exceeds the US Mortgage industry of 0.7%, indicating Waterstone Financial has used its assets more efficiently. And finally, its return on capital (ROC), which also accounts for Waterstone Financial’s debt level, has increased over the past 3 years from 3.7% to 4.8%. This correlates with a decrease in debt holding, with debt-to-equity ratio declining from 234% to 107% over the past 5 years.
What does this mean?
Waterstone Financial’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Companies that are profitable, but have volatile earnings, can have many factors influencing its business. I recommend you continue to research Waterstone Financial to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for WSBF’s future growth? Take a look at our free research report of analyst consensus for WSBF’s outlook.
Financial Health: Are WSBF’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.