Investment Thesis
Waterstone Financial exhibits severe financial distress despite strong revenue growth and healthy operating margins. Critical interest coverage of 0.5x indicates inability to service debt from operations, while negative operating and free cash flow reveal fundamental unprofitability on a cash basis rather than accrual basis. The 1.19x debt-to-equity ratio combined with poor returns (1.7% ROE) suggests unsustainable leverage destroying shareholder value.
Strengths
- Revenue growth of 104.7% YoY demonstrates strong market demand
- Operating margin of 26.0% and net margin of 20.7% show pricing power and cost management
- Equity base of 348.2M provides some cushion against asset deterioration
Risks
- Interest coverage of 0.5x is critically low and indicates inability to cover interest expenses from operations, signaling potential default risk
- Negative operating cash flow of -647K and free cash flow of -1.6M despite positive net income indicates liquidity deterioration and reliance on working capital liquidation
- Debt-to-equity ratio of 1.19x is unsustainably high for an organization burning cash, creating refinancing risk and potential covenant violations
- Extremely low ROE of 1.7% and ROA of 0.3% indicate leverage is destroying rather than enhancing shareholder returns
- Minimal insider confidence with only 2 Form 4 filings in 90 days
Key Metrics to Watch
- Interest coverage ratio (must improve above 1.5x for sustainability)
- Operating cash flow (currently negative, must turn positive)
- Debt-to-equity ratio and debt maturity schedule (refinancing risk)
- Loan loss provisions and asset quality metrics (for a financial institution)
Financial Metrics
Revenue
29.0M
Net Income
6.0M
EPS (Diluted)
$0.34
Free Cash Flow
-1.6M
Total Assets
2.3B
Cash
38.8M
Profitability Ratios
Gross Margin
N/A
Operating Margin
26.0%
Net Margin
20.7%
ROE
1.7%
ROA
0.3%
FCF Margin
-5.6%
Balance Sheet & Liquidity
Current Ratio
N/A
Quick Ratio
N/A
Debt/Equity
1.19x
Debt/Assets
84.5%
Interest Coverage
0.48x
Long-term Debt
413.0M
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-08T07:08:04.770778 |
Data as of: 2026-03-31 |
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