Stock Analysis

Shareholders Of Waterstone Financial (NASDAQ:WSBF) Must Be Happy With Their 63% Return

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NasdaqGS:WSBF
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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you'd like to see the share price move up more than the market average. But Waterstone Financial, Inc. (NASDAQ:WSBF) has fallen short of that second goal, with a share price rise of 25% over five years, which is below the market return. Unfortunately the share price is down 5.1% in the last year.

Check out our latest analysis for Waterstone Financial

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over half a decade, Waterstone Financial managed to grow its earnings per share at 37% a year. The EPS growth is more impressive than the yearly share price gain of 5% over the same period. Therefore, it seems the market has become relatively pessimistic about the company. The reasonably low P/E ratio of 7.24 also suggests market apprehension.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

earnings-per-share-growth
NasdaqGS:WSBF Earnings Per Share Growth December 23rd 2020

It is of course excellent to see how Waterstone Financial has grown profits over the years, but the future is more important for shareholders. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. As it happens, Waterstone Financial's TSR for the last 5 years was 63%, which exceeds the share price return mentioned earlier. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Waterstone Financial provided a TSR of 3.0% over the last twelve months. Unfortunately this falls short of the market return. If we look back over five years, the returns are even better, coming in at 10% per year for five years. It's quite possible the business continues to execute with prowess, even as the share price gains are slowing. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for Waterstone Financial (of which 1 is a bit unpleasant!) you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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