MFA Financial Inc (NYSE:MFA) is a USD$3.10B real estate investment trust (REIT). REITs are a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year . Today, I’ll take you through the real estate sector outlook, and also determine whether MFA Financial is a laggard or leader relative to its real estate sector peers. View our latest analysis for MFA Financial
What’s the catalyst for MFA Financial’s sector growth?
Concerns surrounding rate increases and treasury yield movements have made investors dubious around investing in REIT stocks. This is because REITs tend to be dependent on debt funding. They are also considered as bond investment alternatives due to their high and stable dividend payments. Over the past year, the industry saw growth in the twenties, beating the US market growth of 10.81%. MFA Financial lags the pack with its negative growth rate of -8.29% over the past year, which indicates the company will be growing at a slower pace than its REIT peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 0.55% in the upcoming year.
Is MFA Financial and the sector relatively cheap?
The REIT sector’s PE is currently hovering around 10x, below the broader US stock market PE of 20x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 8.92% on equities compared to the market’s 10.46%. On the stock-level, MFA Financial is trading at a PE ratio of 11x, which is relatively in-line with the average REIT stock. In terms of returns, MFA Financial generated 9.36% in the past year, in-line with its industry average.
What this means for you:
Are you a shareholder? MFA Financial’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given MFA Financial is trading in-line with its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto MFA Financial as part of your portfolio. However, if you’re relatively concentrated in REIT, you may want to value MFA Financial based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If MFA Financial has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company, given that it is trading relatively in-line with its peers. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time.
For a deeper dive into MFA Financial’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.
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.