Over the past six months, Washington Trust Bancorp has been a great trade, beating the S&P 500 by 10.6%. Its stock price has climbed to $40.08, representing a healthy 24.3% increase. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Washington Trust Bancorp, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Washington Trust Bancorp Will Underperform?
Despite the momentum, we’re passing on Washington Trust Bancorp for now. Here are three reasons why there are better opportunities than WASH, plus one stock we’d rather own.
1. Net Interest Income Points to Soft Demand
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
Washington Trust Bancorp’s net interest income has grown at a 4.2% annualized rate over the last five years, much worse than the broader banking industry. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.
2. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) represents how much a bank earns in relation to its outstanding loans. It’s one of the most important metrics to track because it shows how a bank’s loans are performing and whether it has the ability to command higher premiums for its services.
Over the past two years, we can see that Washington Trust Bancorp’s net interest margin averaged a poor 2.4%, reflecting its high servicing and capital costs.
3. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Washington Trust Bancorp, its EPS declined by 7.7% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
Final Judgment
We see the value of companies driving economic growth, but in the case of Washington Trust Bancorp, we’re out. With its shares beating the market recently, the stock trades at 1.3× forward P/B (or $40.08 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. Let us point you toward one of Charlie Munger’s all-time favorite businesses.
Stocks We Like More Than Washington Trust Bancorp
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