Washington Trust Bancorp has had an impressive run over the past six months. While the S&P 500 has been flat, the stock has returned 10% and now trades at $32.24. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is now the time to buy Washington Trust Bancorp, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Washington Trust Bancorp Will Underperform?
Despite the momentum, we don't have much confidence in Washington Trust Bancorp. Here are three reasons you should be careful with WASH and a 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 3.7% annualized rate over the last five years, much worse than the broader banking industry.
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 2.2%, meaning it must compensate for lower profitability through increased loan originations.
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 7.8% 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
Washington Trust Bancorp falls short of our quality standards. With its shares outperforming the market lately, the stock trades at 1.1× forward P/B (or $32.24 per share). This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward the most dominant software business in the world.
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