Is Granite Point Mortgage Trust Inc.’s (NYSE:GPMT) Growth Strong Enough To Justify Its July Share Price?

Granite Point Mortgage Trust Inc. (NYSE:GPMT) closed yesterday at $19.09, which left some investors asking whether the high earnings potential can still be justified at this price. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

See our latest analysis for Granite Point Mortgage Trust

What can we expect from GPMT in the future?

Investors in Granite Point Mortgage Trust have been patiently waiting for the uptick in earnings. If you believe the analysts covering the stock then the following year will be very interesting. Expectations from 4 analysts are bullish with earnings per share estimated to surge from current levels of $1.46 to $1.594 over the next three years. This indicates an estimated earnings growth rate of 15% per year, on average, which indicates a solid future in the near term.

Is GPMT available at a good price after accounting for its growth?

Stocks like Granite Point Mortgage Trust, with a price-to-earnings (P/E) ratio of 13.07x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that GPMT is undervalued relative to the current US market average of 18.03x , and overvalued based on current earnings compared to the Mortgage REITs industry average of 12.71x .

NYSE:GPMT Price Estimation Relative to Market, July 31st 2019
NYSE:GPMT Price Estimation Relative to Market, July 31st 2019

After looking at GPMT’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. However, to properly examine the value of a high-growth stock such as Granite Point Mortgage Trust, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 13.07x and expected year-on-year earnings growth of 15% give Granite Point Mortgage Trust a low PEG ratio of 0.88x. This means that, when we account for Granite Point Mortgage Trust’s growth, the stock can be viewed as fairly valued , based on the fundamentals.

What this means for you:

GPMT’s current undervaluation could signal a potential buying opportunity to increase your exposure to the stock, or it you’re a potential investor, now may be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Financial Health: Are GPMT’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Valuation: What is GPMT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether GPMT is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.