Yahoo Finance Is Two Harbors Investment Corp. (NYSE:TWO) Potentially Undervalued?
Two Harbors Investment Corp. (NYSE:TWO), which is in the mortgage reits business, and is based in United States, saw a significant share price rise of over 20% in the past couple of months on the NYSE. As a stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Two Harbors Investment’s outlook and valuation to see if the opportunity still exists.
See our latest analysis for Two Harbors Investment
What is Two Harbors Investment worth?
According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Two Harbors Investment’s ratio of 4.84x is trading slightly above its industry peers’ ratio of 4.62x, which means if you buy Two Harbors Investment today, you’d be paying a relatively sensible price for it. And if you believe Two Harbors Investment should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since Two Harbors Investment’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 kind of growth will Two Harbors Investment generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -17% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Two Harbors Investment. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? TWO seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in 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 TWO, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on TWO for a while, now may not be the most advantageous time to buy, given it is trading around industry price multiples. This 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 crystallize your views on TWO should the price fluctuate below the industry PE ratio.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Two Harbors Investment. You can find everything you need to know about Two Harbors Investment in the latest infographic research report. If you are no longer interested in Two Harbors Investment, 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.
