A Look At Fannie Mae (OTCPK:FNMA) Valuation As Recent Share Price Swings Cool Momentum

Federal National Mortgage Association (FNMA) has drawn fresh attention after recent share price swings, with gains over the past week contrasting with weaker moves over the month and past 3 months. This has prompted closer scrutiny of its fundamentals.

See our latest analysis for Federal National Mortgage Association.

Set against a 1 year total shareholder return of 152.29% and a very large 3 year total shareholder return, the recent 90 day share price decline of 9.46% suggests momentum has cooled in the short term, even as the longer term picture remains strong.

If FNMA has you watching financials more closely, it could be a good moment to widen your lens and look at fast growing stocks with high insider ownership as potential next ideas.

With Federal National Mortgage Association trading at US$11.00 against an average analyst price target of US$13.25 and an intrinsic value estimate suggesting a premium, you have to ask whether there is genuine value here or whether the market is already pricing in future growth.

Price-to-Sales of 2.2x: Is it justified?

On a P/S of 2.2x at a last close of US$11.00, Federal National Mortgage Association screens as cheaper than peers and the sector on this metric.

The P/S ratio compares the company’s market value to its revenue, which is often used for financial firms where earnings can be volatile or currently negative. For FNMA, this is especially relevant because it is unprofitable, so a sales based lens offers one of the clearer ways to benchmark how the market is pricing its mortgage financing franchise.

According to the statements, FNMA trades on a P/S of 2.2x, compared with a peer average of 4.1x and a US Diversified Financial industry average of 2.5x. This suggests the market is assigning a lower revenue multiple than both reference points. The estimated fair P/S ratio of 6.1x is materially higher than the current level, which highlights a valuation gap between the current P/S and that estimate.

Explore the SWS fair ratio for Federal National Mortgage Association

Result: Price-to-Sales of 2.2x (UNDERVALUED)

However, you also need to weigh FNMA’s recent 90 day share price decline of 9.46% and its net income loss of US$2,008m against that apparent valuation gap.

Find out about the key risks to this Federal National Mortgage Association narrative.

Another View: SWS DCF Suggests a Very Different Story

While the 2.2x P/S ratio points to FNMA looking cheap against peers and the fair ratio, our DCF model takes a far harsher line. On that framework, US$11.00 sits well above an estimated fair value of US$2, which flags potential overvaluation rather than a bargain.

This kind of gap between a sales based check and a cash flow based model raises a practical question for you: which signal do you trust more when the market appears to be paying up for a business that is still loss making?

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 Federal National Mortgage Association 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 870 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Federal National Mortgage Association Narrative

If you are not fully convinced by this view or prefer to lean on your own work, you can test the numbers yourself in just a few minutes, then Do it your way.

A great starting point for your Federal National Mortgage Association research is our analysis highlighting 1 key reward and 2 important warning signs that could impact your investment decision.

Looking for more investment ideas?

If FNMA is on your radar, do not stop there. Widening your search across sectors now could help you spot opportunities before everyone else rushes in.

• Target growth potential at lower price points by scanning these 3564 penny stocks with strong financials that already show stronger financial underpinnings than many larger names.
• Tap into the AI trend by reviewing these 25 AI penny stocks that blend cutting edge technology with the potential to reshape entire industries.
• Focus on price versus fundamentals by filtering for these 870 undervalued stocks based on cash flows where current cash flows support a more compelling entry point.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com