PennyMac Mortgage Investment Trust’s stock price has taken a beating over the past six months, shedding 23.6% of its value and falling to $10.08 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy PennyMac Mortgage Investment Trust, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think PennyMac Mortgage Investment Trust Will Underperform?
Despite the more favorable entry price, we’re sitting this one out for now. Here are three reasons you should be careful with PMT, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
From lending activities to service fees, most banks build their revenue model around two income sources. Interest rate spreads between loans and deposits create the first stream, with the second coming from charges on everything from basic bank accounts to complex investment banking transactions.
PennyMac Mortgage Investment Trust’s demand was weak over the last five years as its revenue fell at a 23.1% annual rate. This wasn’t a great result and signals it’s a low quality business.
Note: Quarters not shown were determined to be outliers because they were impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for PennyMac Mortgage Investment Trust, its EPS declined by 30.1% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. Declining TBVPS Reflects Erosion of Asset Value
Tangible book value per share (TBVPS) serves as a key indicator of a bank’s financial strength, representing the hard assets available to shareholders after removing intangible assets that could evaporate during financial distress.
To the detriment of investors, PennyMac Mortgage Investment Trust’s TBVPS declined at a 3.5% annual clip over the last two years.
Final Judgment
PennyMac Mortgage Investment Trust falls short of our quality standards. After the recent drawdown, the stock trades at 0.7× forward P/B (or $10.08 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. Let us point you toward a top digital advertising platform riding the creator economy.
Stocks We Like More Than PennyMac Mortgage Investment Trust
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