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Is Redwood Trust, Inc. (RWT) a Great Stock for Value Investors?
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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 put Redwood Trust, Inc. (RWT - 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, Redwood Trust has a trailing twelve months PE ratio of 9.89, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 19.97. If we focus on the stock’s long-term PE trend, the current level puts Redwood Trust’s current PE ratio below its midpoint over the past five years.
Further, the stock’s PE also compares favorably with the Zacks classified REIT and Equity Trust industry’s trailing twelve months PE ratio, which stands at 10.22. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Redwood Trust has a forward PE ratio (price relative to this year’s earnings) of just 11.44, so it is fair to say that the stock price might appreciate in the near future.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Redwood Trust’s PEG ratio stands at just 1.42, compared with the Zacks REIT and Equity Trust industry average of 1.81. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Redwood Trust currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Redwood Trust a solid choice for value investors.
What About the Stock Overall?
Though Redwood Trust 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 grade of ‘D’ and a Momentum score of ‘D’. This gives RWT a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been pretty discouraging. The current quarter has seen one estimate going higher in the past sixty days compared to one lower, while the full year estimate has seen one upward and one downward movement in the same time period.
This has had just a small impact on the consensus estimate which although remained flat for the current quarter in the past two months, inched lower by 0.7% for the full year over the same time frame. You can see the consensus estimate trend and recent price action for the stock in the chart below:
This bearish trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
Redwood Trust is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover a strong industry rank (Top 35% out of more than 250 industries) further strengthens its growth potential.
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
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Is Redwood Trust, Inc. (RWT) a Great Stock for Value Investors?
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 put Redwood Trust, Inc. (RWT - 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, Redwood Trust has a trailing twelve months PE ratio of 9.89, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 19.97. If we focus on the stock’s long-term PE trend, the current level puts Redwood Trust’s current PE ratio below its midpoint over the past five years.
Further, the stock’s PE also compares favorably with the Zacks classified REIT and Equity Trust industry’s trailing twelve months PE ratio, which stands at 10.22. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Redwood Trust has a forward PE ratio (price relative to this year’s earnings) of just 11.44, so it is fair to say that the stock price might appreciate in the near future.
PEG Ratio
While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.
Redwood Trust’s PEG ratio stands at just 1.42, compared with the Zacks REIT and Equity Trust industry average of 1.81. This suggests a decent undervalued trading relative to its earnings growth potential right now.
Broad Value Outlook
In aggregate, Redwood Trust currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Redwood Trust a solid choice for value investors.
What About the Stock Overall?
Though Redwood Trust 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 grade of ‘D’ and a Momentum score of ‘D’. This gives RWT a Zacks VGM score—or its overarching fundamental grade—of ‘D’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been pretty discouraging. The current quarter has seen one estimate going higher in the past sixty days compared to one lower, while the full year estimate has seen one upward and one downward movement in the same time period.
This has had just a small impact on the consensus estimate which although remained flat for the current quarter in the past two months, inched lower by 0.7% for the full year over the same time frame. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Redwood Trust, Inc. Price and Consensus
Redwood Trust, Inc. Price and Consensus | Redwood Trust, Inc. Quote
This bearish trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
Redwood Trust is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover a strong industry rank (Top 35% out of more than 250 industries) further strengthens its growth potential.
So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.
5 Trades Could Profit ""Big-League"" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>