Is WSFS Financial Corporation (NASDAQ:WSFS) Expensive For A Reason? A Look At The Intrinsic Value

Pricing WSFS, a financial stock, can be difficult since these banks have cash flows that are affected by regulations that are not imposed upon other sectors. These lenders, for example, must hold certain levels of capital in order to maintain a safe cash cushion. Looking at line items like book values, on top of the return and cost of equity, can be suitable for evaluating WSFS’s intrinsic value. Below we’ll take a look at how to value WSFS in a relatively effective and easy way.

View our latest analysis for WSFS Financial

What Is The Excess Return Model?

There are two facets to consider: regulation and type of assets. Strict regulatory environment in United States's finance industry reduces WSFS's financial flexibility. Moreover, mortgage and thrift companies tend to not hold significant amounts of physical assets as part of total assets. Therefore the Excess Returns model is appropriate for deriving the true value of WSFS as opposed to the traditional model, which puts weight on factors such as capital expenditure and depreciation.

Calculating WSFS's Value

The main belief for Excess Returns is, the value of the company is how much money it can generate from its current level of equity capital, in excess of the cost of that capital. The returns above the cost of equity is known as excess returns:

Excess Return Per Share is used to calculate the terminal value of WSFS, which is how much the business is expected to continue to generate over the upcoming years, in perpetuity. This is a common component of discounted cash flow models:

These factors are combined to calculate the true value of WSFS's stock:

This results in an intrinsic value of $40.58. Relative to the present share price of US$50.85, WSFS is currently priced above its true value. Therefore, there's no benefit to buying WSFS today. Pricing is one part of the analysis of your potential investment in WSFS. There are other important factors to keep in mind when assessing whether WSFS is the right investment in your portfolio.

Next Steps:

For mortgage and thrift companies, there are three key aspects you should look at:

1. Financial health: Does it have a healthy balance sheet? Take a look at our free bank analysis with six simple checks on things like bad loans and customer deposits.
2. Future earnings: What does the market think of WSFS going forward? Our analyst growth expectation chart helps visualize WSFS’s growth potential over the upcoming years.
3. Dividends: Most people buy financial stocks for their healthy and stable dividends. Check out whether WSFS is a dividend Rockstar with our historical and future dividend analysis.

For more details and sources, take a look at our full calculation on WSFS here.

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 editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.