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Is Now The Time To Look At Buying Ellington Residential Mortgage REIT (NYSE:EARN)?

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Ellington Residential Mortgage REIT (NYSE:EARN), which is in the mortgage reits business, and is based in United States, saw a decent share price growth in the teens level on the NYSE over the last few months. Less-covered, small caps sees more of an opportunity for mispricing due to the lack of information available to the public, which can be a good thing. So, could the stock still be trading at a low price relative to its actual value? Let’s take a look at Ellington Residential Mortgage REIT’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Check out our latest analysis for Ellington Residential Mortgage REIT

What is Ellington Residential Mortgage REIT worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 10.36% above my intrinsic value, which means if you buy Ellington Residential Mortgage REIT today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is $4.24, there’s only an insignificant downside when the price falls to its real value. Is there another opportunity to buy low in the future? Since Ellington Residential Mortgage REIT’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Ellington Residential Mortgage REIT look like?

NYSE:EARN Past and Future Earnings April 7th 2020
NYSE:EARN Past and Future Earnings April 7th 2020

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Ellington Residential Mortgage REIT, at least in the near future.

What this means for you:

Are you a shareholder? Currently, EARN appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on EARN for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on EARN should the price fluctuate below its true value.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Ellington Residential Mortgage REIT. You can find everything you need to know about Ellington Residential Mortgage REIT in the latest infographic research report. If you are no longer interested in Ellington Residential Mortgage REIT, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.