Freddie Mac (FMCC): Evaluating Valuation as Mortgage Rates Tick Lower and Policy Signals Boost Housing Outlook

Federal Home Loan Mortgage (FMCC) is drawing fresh attention as average 30-year fixed mortgage rates moved down to 6.27% this week. Refinancing activity and housing affordability are seeing an uptick. Ongoing policy discussions could further influence its trajectory.

See our latest analysis for Federal Home Loan Mortgage.

This easing in mortgage rates has arrived alongside several noteworthy updates from Freddie Mac, including a leadership change and the purchase of $1.2 billion in credit risk notes. Although the momentum has cooled over the past month with a 23.6% one-month share price return, the stock’s performance over the long run truly stands out. There has been a one-year total shareholder return of 693.8% and a remarkable 1,927.7% over three years. The recent price swings reflect evolving risk perceptions, but the longer-term trend signals that investor appetite is still strong.

If you’re searching for the next big story in the market, it might be the perfect moment to discover fast growing stocks with high insider ownership.

But with Freddie Mac’s share price cooling in the short term and future policy actions looming, investors are asking whether the stock is offering real value to buyers at these levels or if the market is already factoring in its next chapter of growth.

Price-to-Sales of 1.4x: Is it justified?

Federal Home Loan Mortgage is trading at a price-to-sales ratio of 1.4x, which is well below both peer and industry averages. With the last close at $10.24, shares may be reflecting a significant relative discount compared to others in the diversified financials space.

The price-to-sales ratio gives investors a snapshot of how much they are paying for each dollar of revenue generated by the company. This multiple is particularly useful for evaluating companies where profits fluctuate or are currently negative, as is the case with FMCC.

In this context, FMCC’s price-to-sales ratio is not only lower than the peer average of 4.2x but also below the US diversified financial industry average of 2.5x. Such a substantial difference suggests the market is assigning a lower value to FMCC’s revenue compared to competitors, possibly due to ongoing unprofitability or risk factors. If FMCC can address its profitability challenges, there could be room for multiple expansion toward industry norms.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Sales of 1.4x (UNDERVALUED)

However, persistent net losses and uncertainty around future revenue growth remain significant risks. These factors could dampen investor enthusiasm moving forward.

Find out about the key risks to this Federal Home Loan Mortgage narrative.

Another View: What Does the SWS DCF Model Suggest?

Taking a different approach, our DCF model values Federal Home Loan Mortgage at $77.14 per share. This indicates the stock trades at an 86.7% discount to its estimated fair value. This perspective highlights a much greater potential upside than the relative multiple suggests. Which valuation will prove more accurate over time?

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 Home Loan Mortgage 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 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 Home Loan Mortgage Narrative

If you see things differently or want to dig into the data firsthand, you can craft your own narrative in just a few minutes. Do it your way.

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

Looking for more investment ideas?

Unlock even greater opportunities by targeting stocks with unique growth stories, sector momentum, or resilient income potential. Make your next investing move count with these tailored searches:

• Catch the momentum of companies revolutionizing AI-driven healthcare by targeting these 33 healthcare AI stocks that stand out for innovation and rapid adoption.
• Secure your portfolio’s future by accessing these 878 undervalued stocks based on cash flows that are trading at compelling valuations based on cash flow analysis and proven fundamentals.
• Maximize your returns with reliable income by zeroing in on these 18 dividend stocks with yields > 3% offering attractive yields and steady cash flows above 3%.

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