Why Dynex Capital is on investors’ radar today
Dynex Capital (DX) has drawn attention after recent price weakness, with the stock closing at US$12.85 and recording declines over the past week, month and past 3 months.
For income focused investors looking at mortgage REITs, the pullback sits against a backdrop of reported annual revenue of US$303.96 million and net income of US$230.85 million from Dynex Capital’s US mortgage backed securities portfolio.
See our latest analysis for Dynex Capital.
Short term momentum for Dynex Capital has been weak, with the share price down 6.61% over the past 30 days and 9.06% over 3 months. However, the 1 year total shareholder return of 27.12% and 3 year total shareholder return of 86.39% show that longer term holders have seen significantly stronger outcomes.
If this kind of income focused story has your attention, it can also be useful to scan for other opportunities using Simply Wall St’s 20 top founder-led companies
With Dynex Capital’s recent share price weakness, current price of US$12.85 and analyst price target of US$15.10, the key question is whether the stock is undervalued today or if the market already reflects future growth.
Price-to-Earnings of 12x: Is it justified?
At a last close of $12.85, Dynex Capital trades on a P/E of 12x, which sits between a lower U.S. market average and a similar Mortgage REITs industry average.
The P/E ratio compares the current share price with earnings per share, so it effectively shows how much investors are paying for each dollar of current earnings. For a mortgage REIT like Dynex Capital, this is a quick way to gauge how the market is weighing its income profile, payout, and risk against peers.
Here, Dynex Capital’s 12x P/E is below the wider U.S. market at 18.6x, yet in line with the U.S. Mortgage REITs industry at 12x. That suggests the stock is priced similarly to sector peers, while market wide investors assign a higher multiple to earnings overall. Against this, the estimated fair P/E of 18.1x implies a higher level the valuation could move toward if that fair ratio view proves accurate.
Explore the SWS fair ratio for Dynex Capital
Result: Price-to-Earnings of 12x (ABOUT RIGHT)
However, the narrative could shift if mortgage credit conditions tighten or if funding costs change in a way that pressures Dynex Capital’s income and distributions.
Find out about the key risks to this Dynex Capital narrative.
Another view on value
While the P/E of 12x suggests Dynex Capital is roughly in line with the wider market, our DCF model presents a more challenging perspective. On that view, the stock price of $12.85 sits above an estimated value of $4.82, which indicates a potential overvaluation that investors may wish to consider carefully.
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Dynex Capital for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 53 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
With mixed signals on valuation and sentiment, it helps to look past the headlines and weigh the trade off between risk and reward for yourself. To see both sides of the story in one place, start with our breakdown of 3 key rewards and 3 important warning signs
Looking for more investment ideas?
If Dynex Capital has you thinking more broadly about your portfolio, it is worth lining up a few fresh ideas before the next opportunity passes you by.
- Spot potential value plays early by scanning companies that currently appear mispriced using the 53 high quality undervalued stocks.
- Strengthen your income stream by hunting for reliable payers with the 10 dividend fortresses.
- Lower the overall risk profile of your holdings by filtering for resilient businesses through the 66 resilient stocks with low risk scores.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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