Ellington Residential Mortgage REIT (NYSE:EARN) is a US$140.29M 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 will analyse the industry outlook, and also determine whether Ellington Residential Mortgage REIT is a laggard or leader relative to its real estate sector peers. See our latest analysis for Ellington Residential Mortgage REIT
What’s the catalyst for Ellington Residential Mortgage REIT’s sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. Over the past year, the industry saw growth in the twenties, beating the US market growth of 9.88%. Ellington Residential Mortgage REIT lags the pack with its negative growth rate of -4.47% 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 17.47% in the upcoming year.
Is Ellington Residential Mortgage REIT and the sector relatively cheap?
The REIT industry is trading at a PE ratio of 9.17x, below the broader US stock market PE of 19.15x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 8.84% on equities compared to the market’s 10.46%. On the stock-level, Ellington Residential Mortgage REIT is trading at a PE ratio of 9.17x, which is relatively in-line with the average REIT stock. In terms of returns, Ellington Residential Mortgage REIT generated 7.06% in the past year, which is 1.78% below the REIT sector.
Ellington Residential Mortgage REIT’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 the stock is trading in-line with its peers. If Ellington Residential Mortgage REIT 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. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at Ellington Residential Mortgage REIT’s fundamentals in order to build a holistic investment thesis.
1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Historical Track Record: What has EARN’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Ellington Residential Mortgage REIT? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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.