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Was Ellington Residential Mortgage REIT’s (NYSE:EARN) Earnings Decline Part Of A Broader Industry Downturn?

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Assessing Ellington Residential Mortgage REIT’s (NYSE:EARN) past track record of performance is a useful exercise for investors. It allows us to understand whether the company has met or exceed expectations, which is a great indicator for future performance. Below, I assess EARN’s latest performance announced on 31 December 2017 and evaluate these figures to its historical trend and industry movements. See our latest analysis for Ellington Residential Mortgage REIT

Was EARN’s weak performance lately a part of a long-term decline?

For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This allows me to assess different stocks on a similar basis, using the most relevant data points. For Ellington Residential Mortgage REIT, its most recent trailing-twelve-month earnings is US$10.79M, which, relative to the prior year’s figure, has dropped by -9.39%. Since these figures may be relatively nearsighted, I’ve estimated an annualized five-year figure for EARN’s earnings, which stands at US$7.69M This suggests that though earnings declined against last year, over a longer period of time, Ellington Residential Mortgage REIT’s profits have been increasing on average.

NYSE:EARN Income Statement Apr 30th 18
NYSE:EARN Income Statement Apr 30th 18

How has it been able to do this? Let’s see whether it is merely a result of an industry uplift, or if Ellington Residential Mortgage REIT has seen some company-specific growth. Over the past few years, Ellington Residential Mortgage REIT expanded its bottom line faster than revenue by efficiently controlling its costs. This brought about a margin expansion and profitability over time. Looking at growth from a sector-level, the US mortgage reits industry has been growing, albeit, at a subdued single-digit rate of 9.49% over the past twelve months, and a substantial 10.89% over the past five years. This means that any tailwind the industry is enjoying, Ellington Residential Mortgage REIT has not been able to reap as much as its industry peers.

What does this mean?

Though Ellington Residential Mortgage REIT’s past data is helpful, it is only one aspect of my investment thesis. Companies that are profitable, but have capricious earnings, can have many factors influencing its business. I recommend you continue to research Ellington Residential Mortgage REIT to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for EARN’s future growth? Take a look at our free research report of analyst consensus for EARN’s outlook.

  2. Financial Health: Is EARN’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.