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Waterstone Financial Inc. Analysis

|Includes: Waterstone Financial, Inc. (WSBF)

Waterstone Financial, Inc. ("Waterstone Financial, Inc. (NASDAQ:WSBF)") whose improving loan has led it to a highly profitable 3rd quarter after 3 years of running losses in its net income seems poised for a turn around in 2013 and once the 4th quarter results are released which analyst are expecting to be very good, Waterstone Financial will be a stock to watch for 2013. WSBF has increased mortgage loans, and the mortgage loans by all accounts seem to be of a higher quality than in the past.

""The record number of mortgage originations by Waterstone Mortgage Corp. has increased net income, and the steadfast improvement in WaterStone Bank's loan portfolio has resulted in significantly lower and more normalized loss provisions," said Doug Gordon, president and chief executive."

Consequently, Waterstone has seen a net income of $17 million over the last 3 quarters with $8.6 million or nearly half of that coming in the most recent quarter. With results like these, a 338% increase in share price has resulted. This is possibly one of the most undervalued small cap financial stocks in the market today.

Financial analysis of similar sized competitors show they are trading at P/E ratio of about 37:1. Since Waterstone had a losing quarter 4 quarters ago the P/E ratio is appearing artificially low in the price range. That is, when the market properly adjust, and Waterstone is noticed, and if it continues posting the same level of earnings in the 4th quarter, expect the price to hit $14.06 per share.

Waterstone has clearly improved its base financial performance and on the ground sales team as evident by the regulators removing orders that forced Waterstone to strengthen its financial positioning and loan portfolio. Further Waterstone had a net earning of $1 million from mortgage lending in the most recent quarters so we know that they are indeed in a strong financial position.