Ellington Financial has been treading water for the past six months, recording a small loss of 3.2% while holding steady at $13.05. The stock also fell short of the S&P 500’s 4.8% gain during that period.

Is there a buying opportunity in Ellington Financial, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Do We Think Ellington Financial Will Underperform?

We're sitting this one out for now. Here are three reasons we avoid EFC and a stock we'd rather own.

1. EPS Barely Growing

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.

Ellington Financial’s EPS grew at a weak 2.7% compounded annual growth rate over the last five years, lower than its 10.7% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

2. 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, Ellington Financial’s TBVPS declined at a 2.5% annual clip over the last two years.

3. Projected TBVPS Growth Is Slim

Tangible book value per share (TBVPS) growth is driven by a bank’s ability to earn more than its cost of capital through lending activities while maintaining a strong balance sheet.

Over the next 12 months, Consensus estimates call for Ellington Financial’s TBVPS to grow by 2% to $13.53, inadequate growth rate.

Final Judgment

Ellington Financial falls short of our quality standards. With its shares lagging the market recently, the stock trades at 0.9× forward P/B (or $13.05 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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