WaFd Bank has had an impressive run over the past six months as its shares have beaten the S&P 500 by 15.3%. The stock now trades at $35.10, marking a 20% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in WaFd Bank, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think WaFd Bank Will Underperform?
We’re happy investors have made money, but we're cautious about WaFd Bank. Here are three reasons you should be careful with WAFD and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
While bank generate revenue from multiple sources, investors view net interest income as a cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of one-time fees.
WaFd Bank’s net interest income has grown at a 7.5% annualized rate over the last five years, worse than the broader banking industry and in line with its total revenue.
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 WaFd Bank’s net interest margin averaged a poor 2.6%. This metric is well below other banks, signaling its loans aren’t very profitable.
3. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for WaFd Bank, its EPS declined by 2.6% annually over the last two years while its revenue grew by 4.1%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
WaFd Bank falls short of our quality standards. With its shares beating the market recently, the stock trades at 1× forward P/B (or $35.10 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at one of our top digital advertising picks.
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