3 Reasons to sell WASH and 1 stock to buy instead

Washington Trust Bancorp's 22.3% return over the past six months has outpaced the S&P 500 by 14.8%, and its stock price has climbed to $39.11 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

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, plus one stock we'd rather own.

1. Net interest income points to soft demand

Our experience and research show the market cares primarily about a bank's net interest income growth as one-time fees are considered a lower-quality and non-recurring revenue source.

Washington Trust Bancorp's net interest income has grown at a 4.3% annualized rate over the last five years, much worse than the broader banking industry. Its growth was driven by both an increase in its outstanding loans and net interest margin, which represents how much a bank earns in relation to its outstanding loan book.

2. EPS trending down

We track the long-term change in earnings per share (EPS) because it highlights whether a company's growth is profitable.

Sadly for Washington Trust Bancorp, its EPS declined by 5.3% annually over the last five years while its revenue grew by 1.3%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Declining TBVPS reflects erosion of asset value

Tangible book value per share (TBVPS) serves as a key indicator of a bank's financial strength, representing the hard assets available to shareholders after removing intangible assets that could evaporate during financial distress.

Disappointingly for investors, Washington Trust Bancorp's TBVPS declined at a 2.5% annual clip over the last two years.

Final judgment

Washington Trust Bancorp doesn't pass our quality test. With its shares outperforming the market lately, the stock trades at 1.4× forward P/B (or $39.11 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. Let us point you toward one of our all-time favorite software stocks .

Stocks we would buy instead of Washington Trust Bancorp

ONE MORE THING: Top 5 Growth Stocks.The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.