Back to top

Image: Bigstock

Is Capstead Mortgage (CMO) a Good Value Investor Stock?

Read MoreHide Full Article

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s Capstead Mortgage Corporation (CMO - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Capstead Mortgage has a trailing twelve months PE ratio of 9.74, as you can see in the chart below:

Zacks Investment Research
Image Source: Zacks Investment Research

This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 28.79. If we focus on the long-term PE trend Capstead Mortgage’s PE level puts it below its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.

Zacks Investment Research
Image Source: Zacks Investment Research

However, the stock’s PE also compares unfavorably with the Zacks Finance sector’s trailing twelve months PE ratio, which stands at 18.9. At the very least, this indicates that the stock is slightly undervalued right now, compared to its peers.

Zacks Investment Research
Image Source: Zacks Investment Research

We should also point out that Capstead Mortgage has a forward PE ratio (price relative to this year’s earnings) of just 10.6, so it is fair to expect an increase in the company’s share price in the near future.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Capstead Mortgage has a P/S ratio of about 4.06. This is substantially lower than the S&P 500 average, which comes in at 5.38 right now. Also, as we can see in the chart below, this is somewhat below the highs for this stock in particular over the past few years.

Zacks Investment Research
Image Source: Zacks Investment Research

Broad Value Outlook

In aggregate, Capstead Mortgage currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Capstead Mortgage a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, Capstead Mortgage’s P/CF ratio comes in at 3.58, which is noticeably better than the industry average of 7.84. Clearly, CMO is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Capstead Mortgage might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of D and Momentum Score of C. This gives Capstead Mortgage a Zacks VGM score — or its overarching fundamental grade — of C. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. This has had a noticeable impact on the consensus estimate, as the current year consensus estimate declined 5% in the past two months, whereas the full year 2022 estimate improved 1.6% in the past two months. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Capstead Mortgage Corporation Price and Consensus

Owing to bearish estimate trends the stock has a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.

Bottom Line

Capstead Mortgage is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the sector has clearly underperformed the market at large, as you can see below:

Zacks Investment Research
Image Source: Zacks Investment Research

So, value investors might want to wait for estimates, analyst sentiment and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.


In-Depth Zacks Research for the Tickers Above


Choose a ticker to receive a FREE report - normally $25 each:


Capstead Mortgage Corporation (CMO) - free report >>

Published in