Fannie Mae (FNMA): Evaluating Undervalued Potential After Strong 12-Month Shareholder Returns

Federal National Mortgage Association (FNMA) shares have drifted slightly lower over the past week; however, they are still up over 9% in the past year. The stock's recent movement may prompt investors to revisit its long-term trends and valuation.

See our latest analysis for Federal National Mortgage Association.

With Federal National Mortgage Association’s share price easing back from recent highs, it is easy to overlook the fact that momentum remains strong. Investors who have held over the past year have enjoyed a remarkable 907% total shareholder return, signaling a dramatic turnaround and shifting perception of the stock’s prospects.

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With FNMA’s share price pulling back after a significant run, investors are left to wonder whether the current valuation leaves room for further gains or if the market has already factored in the company’s future growth potential.

Price-to-Sales of 2.4x: Is it justified?

At a price-to-sales ratio of 2.4x, Federal National Mortgage Association trades below both its peer average (4x) and the broader US Diversified Financial industry average (2.6x). With a last close price of $11.88, the stock currently appears undervalued relative to sales-based metrics used by investors in this sector.

The price-to-sales ratio measures how much investors are willing to pay for each dollar of revenue. For financial companies like FNMA, this multiple is a useful indicator, especially when profits are volatile or negative, as it directly ties valuation to top-line performance. A lower number suggests the market may be discounting the company’s growth or profitability outlook, but it can also signal a potential opportunity if business conditions improve.

FNMA’s price-to-sales ratio is not only undercutting industry averages, it also sits well below what some quantitative models deem a reasonable benchmark. Its fair price-to-sales is 7.7x. This wide gap underscores significant skepticism in the market, and highlights considerable upside should investor sentiment or operating results shift in the company’s favor.

Explore the SWS fair ratio for Federal National Mortgage Association

Result: Price-to-Sales of 2.4x (UNDERVALUED)

However, slowing annual revenue growth and recent pullbacks in share price could signal that market optimism is now vulnerable due to shifting financial fundamentals.

Find out about the key risks to this Federal National Mortgage Association narrative.

Build Your Own Federal National Mortgage Association Narrative

If you want to dig deeper or challenge the narrative shared here, you can analyze the numbers for yourself and build a perspective in just minutes, Do it your way

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

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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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