Over the past six months, Ladder Capital’s stock price fell to $9.66. Shareholders have lost 6.6% of their capital, which is disappointing considering the S&P 500 has climbed by 11.8%. 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 Ladder Capital, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Ladder Capital Not Exciting?
Despite the more favorable entry price, we don’t have much confidence in Ladder Capital. Here are three reasons why LADR doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
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.
Regrettably, Ladder Capital’s revenue grew at a tepid 6.8% compounded annual growth rate over the last five years. This was below our standard for the banking sector.
2. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for Ladder Capital, its EPS declined by more than its revenue over the last two years, dropping 16.8%. This tells us the company struggled to adjust to shrinking demand.
3. Declining TBVPS Reflects Erosion of Asset Value
We consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation.
Ladder Capital’s TBVPS was flat over the last five years, and the past two years paint an even worse picture as TBVPS declined at a -2.8% annual clip (from $11.53 to $10.88 per share).
Final Judgment
Ladder Capital isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 0.9× forward P/B (or $9.66 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at the most entrenched endpoint security platform on the market.
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