If you are standing on the sidelines trying to decide what to do with Federal Home Loan Mortgage stock, you are definitely not alone. There is a growing buzz around Freddie Mac lately, fueled by both major headlines and a performance record that has suddenly come to life. Whether you are eyeing that 590% return over the last quarter or weighing the implications of a possible IPO, now might be one of those rare moments when Wall Street and Main Street are both looking in the same direction.
Here is what you need to know up front: FMCC has been anything but boring. In just the past month, the stock price has shot up over 30%, and looking at the year-to-date return is even more mind-boggling, up more than 175%. Recent speculation about an IPO, talk of merging Freddie Mac with Fannie Mae, and even conversations about incorporating crypto assets into mortgage applications have all added to the excitement. There have also been changes in how investors perceive the risks tied to government-sponsored entities like Freddie.
But even with all this action, one question keeps coming up: is the stock actually undervalued? According to our composite valuation score, where a point is earned for each of six key checks for undervaluation, Freddie Mac scores an impressive 5 out of 6. That is a strong signal and hints at significant upside, though some risks still remain on the table.
Next, we are going to break down exactly which valuation methods suggest FMCC is a bargain, and which raise caution flags. And if you are looking for an even deeper insight, stick around until the end for a more holistic way to decide whether this stock lines up with your goals.
Federal Home Loan Mortgage delivered 679.0% returns over the last year. See how this stacks up to the rest of the Diversified Financial industry.Approach 1: Federal Home Loan Mortgage Cash Flows
The Discounted Cash Flow (DCF) model examines a company’s expected future cash flows and calculates their present value. This approach helps investors estimate what a business might be worth, based on its potential to generate money over time.
For Federal Home Loan Mortgage, the most recent Free Cash Flow is $14.5 billion, with projections indicating steady growth over the next decade. By 2035, estimates place the annual Free Cash Flow at just over $32.3 billion. This suggests the business could more than double its cash flow in ten years, according to current analyst projections.
Based on these future cash flows, the DCF analysis results in an intrinsic value of $77.14 per share. Comparing this value to today’s price, the stock appears about 88.0% undervalued under this model. This represents a significant discount and may indicate potential upside from current levels if these forecasts are realized.
Result: UNDERVALUEDApproach 2: Federal Home Loan Mortgage Price vs Sales
The Price-to-Sales (P/S) ratio is a common valuation method, particularly useful for companies where profits can be influenced by large one-time charges or where steady cash flow provides a clearer picture than reported earnings. For a large, asset-heavy institution like Federal Home Loan Mortgage, which operates in finance and often experiences fluctuations in reported profits, the Price-to-Sales ratio offers a straightforward way to compare the market’s valuation of its revenue streams against key benchmarks.
Growth expectations and overall business risk are typically the main factors behind what investors consider a “fair” P/S ratio for a company. If a company is expected to grow quickly and maintains stable revenue, a higher P/S ratio might be justified. Conversely, if there is uncertainty about future performance, investors may only be willing to pay a lower multiple of sales.
Currently, Federal Home Loan Mortgage trades at a P/S ratio of 1.30x. This is below the industry average of 2.63x, and below the peer group average of 3.82x. Simply Wall St’s Fair Ratio for FMCC, which adjusts for profitability, growth, and industry factors, is 6.52x, much higher than where shares trade today. This indicates the stock could be undervalued when assessed using this sales-based approach.
Result: UNDERVALUEDUpgrade Your Decision Making: Choose your Federal Home Loan Mortgage Narrative
Narratives are a new, more dynamic way to invest, allowing you to connect your personal view of a company’s story with financial forecasts and arrive at your own fair value for a stock.
In simple terms, a Narrative is how you explain the numbers: you decide how Federal Home Loan Mortgage’s future might play out, then translate that into estimates for revenue, earnings, and margins. This creates a clear link between the company’s story and its potential price.
With Narratives on Simply Wall St, millions of investors can easily build, share, and compare their perspectives, making investment decisions more transparent and accessible for everyone.
By lining up your Narrative’s fair value against the current share price, you can see right away whether the stock looks like a buy, hold, or sell based on your specific expectations.
Best of all, Narratives are always evolving and automatically update whenever new information such as earnings reports or major news arrives. This way your outlook stays current and relevant.
For instance, one investor’s Narrative might project rapid growth and a high fair value, while another’s more cautious approach could see a lower valuation for the same stock on the same day.
Do you think there's more to the story for Federal Home Loan Mortgage? Create your own Narrative to let the Community know!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.
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