Over the past six months, WSFS Financial has been a great trade, beating the S&P 500 by 8%. Its stock price has climbed to $65.54, representing a healthy 14.2% 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 WSFS Financial, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is WSFS Financial Not Exciting?
We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons we avoid WSFS and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within financials, a stretched historical view may miss recent interest rate changes, market returns, and industry trends. WSFS Financial’s recent performance shows its demand has slowed as its annualized revenue growth of 3.2% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
2. Projected Net Interest Income Growth Is Slim
Forecasted net interest income by Wall Street analysts signals a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect WSFS Financial’s net interest income to drop by 7.2%, a decrease from its 5.2% annualized growth for the past two years. This projection is below its 5.2% annualized growth rate for the past two years.
3. Net Interest Margin Dropping
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, WSFS Financial’s net interest margin averaged 3.9%. However, its margin contracted by 26.9 basis points (100 basis points = 1 percentage point) over that period.
This decline was a headwind for its net interest income. While prevailing rates are a major determinant of net interest margin changes over time, the decline could mean WSFS Financial either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.
Final Judgment
WSFS Financial isn’t a terrible business, but it isn’t one of our picks. With its shares topping the market in recent months, the stock trades at 1.2× forward P/B (or $65.54 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at the most dominant software business in the world.
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