One of the hottest stocks of the season belongs to Washington Homes Inc. of Waldorf, Md., a 20-year-old company that builds homes in the $50,000 to $160,000 price range.

The price of WHI shares recently doubled in three weeks after the home-building firm announced a 171 percent increase in its second-quarter earnings and unveiled a new $15.8 million stock offering.

WHI offers investors not only a housing play but a savings and loan play, as well. WHI owns 85 percent of a small thrift institution, Bay State Savings and Loan Association in Waldorf.

Given the dramatic drop in interest rates and the upsurge in home building, especially in the Washington area, WHI's business has been booming in recent months. Bay State Savings and Loan, which was briefly caught in the Maryland savings and loan crisis, also is benefiting from the favorable interest-rate environment.

The runup in Washington Homes stock has been quite astonishing. In 1984, WHI shares traded between $2.50 and $5.50. In 1985, the range was $4.63 to $9.88, with the $8 and $9 trades coming near the end of the year. Between Jan. 1 and Feb. 19, the day before the WHI prospectus was issued, the stock sold between $8.63 and $13.63.

The stock then took off suddenly. On Feb. 14, WHI closed at $12.50, on Feb. 21, it was at $15.63, on Feb. 28 at $17.63 and on March 7 at $25.25. Thus, in three weeks, WHI rose 102 percent. The stock closed Friday at $22.63.

Why all the furor?

There seems to be no single reason, but there may be several reasons. Housing industry analysts note that almost all housing stocks have seen big moves in the last several months. Increases of 50 percent to 60 percent have not been unusual. Falling interest rates and low inflation simply are good for the home-building business.

As a result, home-builder stocks have vaulted almost to the top of the list that compares the market performance of various industry groups. Moreover, in a list of 37 home-building companies published recently by Investors Daily, Washington Homes ranked first in both earnings per share and relative price strength.

While WHI's return on equity was relatively high at 25.6 percent, so was the company's "beta," or measure of volatility. WHI's beta was 3.17, the second-highest among the 37 home-building companies. The beta for the entire stock market is 1, which means that, on a relative basis, WHI stock is considered three times as volatile as the market.

During the last two years, WHI has taken an interesting route followed by many of its companions in the home-building business. WHI has formed subsidiaries that, for tax purposes, allow for the financing of mortgages for its customers on an installment sale basis. Although the process is complicated, the company was able to defer $5.4 million in taxes during fiscal 1985 and $2.2 million during fiscal 1984.

The installment sales technique has helped put many housing companies into both the consumer finance and mortgage banking business. Unfortunately for home builders, however, pending tax legislation may interfere with future tax deferments of this sort.

WHI's ownership of Bay State has been a mixed blessing, at times. Bay State, a two-branch thrift with $82.4 million in assets, opened for business about three years ago. A state-chartered thrift, Bay State was insured, if that's the word, by the Maryland Savings-Share Insurance Corp. (MSSIC). After the Maryland S&L crisis began, Bay State obtained deposit insurance from the Federal Savings and Loan Insurance Corp. (FSLIC).

When the crisis broke, Bay State had $1.1 million on deposit with MSSIC. Figuring the money was gone, Bay State later wrote off its deposit. But things have been looking up. "Since obtaining FSLIC insurance, Bay State's deposits have increased and its operations have remained profitable," says the prospectus for WHI's new stock offering.

In order to get FSLIC insurance, Bay State had to get help from WHI. Bay State could not count its MSSIC deposit as part of its net worth, as the regulators define net worth. So WHI pledged to Bay State $1.5 million of its deposits at the S&L.

To free up that money, Bay State has now sought to raise $1.7 million privately from a "rights offering" to its present shareholders. The thrift offered shareholders 2,704 units at $627.50 a unit. Each unit contained $500 in convertible subordinated debentures (bonds) and 50 shares of common stock at $2.55 a share.

To maintain its percentage interest in Bay State, WHI will buy 85 percent of the units and any units other stockholders don't want.

In its public offering, Washington Homes is selling 700,000 shares, of which 350,000 are coming from the company and 350,000 from selling shareholders. Of that, 280,000 shares are being sold by William J. Harnett, the chairman of WHI. Another 35,000 shares are being sold by Lawrence M. Breneman, the president of WHI.

At Friday's closing price of $22.63, the company would receive $7.9 million, Harnett would get $6.3 million and Breneman would get $792,000, all before commissions. Thomson McKinnon Securities is the underwriter.

Harnett, who has owned 40.3 percent of the company, will see his share drop to 26.8 percent, and Breneman, who had 4 percent of the stock, will be left with only 2.5 percent.

The home-building business, of course, has its periods of boom and bust. And Washington Homes has seen its share of red ink. In 1981 and 1982, when interest rates were high and buyers scarce, WHI lost money. When interest rates began to drop in 1983, sales picked up. They got better in 1984 and 1985, and in 1986 profits are up sharply.

The company is still small. It sells about 800 homes a year and had a $3.1 million profit for the first half of fiscal 1986, which ended Jan. 31. That was a 131.9 percent gain over its profit for the first six months a year earlier. Earnings per share rose to $1.14 from 50 cents during the same period.

During its years of relative obscurity, Washington Homes has had a number of loyal and hopeful shareholders, patiently waiting for the day when the stock would break out. That day seems to have come.

Giant Food, which has been traded on the American Stock Exchange and the Philadelphia Stock Exchange, is now listed on the Pacific Stock Exchange. Israel Cohen, Giant's president, said, "The new listing will enable us to significantly attract new shareholders on the West Coast and also give our current shareholders broader trading opportunities."

CFS Financial Corp. of Fairfax, holding company for Continental Federal Savings Bank, is offering 800,000 shares of its common stock, with provisions for an extra 120,000 shares if the issue sells out. The shares closed Friday at $20. At that price, the company would raise $18.4 million, before commissions.

Circuit City Stores of Richmond still looks like a "buy" to analyst Michael M. Via of Anderson & Strudwick in Richmond, despite the stock's 56 percent rise since he recommended it last November. Favorable factors, Via believes, are Circuit City's decision to sell its 15 Lafayette stores in New York and its withdrawal from "departments" in the Zody's stores in California. Circuit City has developed 11 stores of its own in California with seven more to come. "We anticipate that sales will approach the $900 million mark and that earnings per share could top $2.50 for the current fiscal year ended Feb. 28, 1987," Via said.

Baltimore Bancorp (BBCM) has been reinstated to the Analyst Action List at Wheat, First Securities, Richmond. BBCM is the former Savings Bank of Baltimore, which was converted to a commercial bank-holding company. "In our opinion, current price levels offer an excellent buying opportunity for investors with a two-year investment horizon," the firm said. The kicker, however, is that Wheat's analysts recommend the stock on pull-backs to the mid-$30s. The stock has been selling for about $40 a share.