Is Fannie Mae (FNMA) Still Undervalued After Its Recent Share Price Rebound?

Federal National Mortgage Association (FNMA) has quietly turned into a long term rollercoaster for investors, with the stock up 2% year to date but still down around 9% over the past 3 months.

See our latest analysis for Federal National Mortgage Association.

That mix of a 6.8% 1 month share price return and a much stronger year to date share price return of over 230% suggests sentiment has improved sharply, even though the 1 year total shareholder return above 360% already reflects investors steadily repricing the turnaround story.

If this kind of sharp rebound has you thinking about what else is working in the market, it may be worth exploring fast growing stocks with high insider ownership as a source of fresh ideas.

With shares still trading below analyst targets yet already up several hundred percent over the past year, the key question now is whether FNMA remains undervalued or if the market is already pricing in its future growth potential.

Price-to-Sales of 2.3x: Is it justified?

On a price-to-sales basis, Federal National Mortgage Association looks inexpensive at the last close of $11.49, especially versus peers and its implied fair level.

The preferred valuation yardstick here is the price-to-sales ratio, which compares FNMA's market value to its $28.5 billion in annual revenue. For a capital intensive, credit focused diversified financial business where earnings are currently negative, sales-based multiples can provide a clearer view of how the market values its scale.

FNMA trades on a price-to-sales ratio of 2.3 times, which is described as good value relative to direct peers on 4 times and a US diversified financial industry average of 2.5 times. More strikingly, regression-based fair value work points to a fair price-to-sales ratio closer to 6.3 times, implying that if sentiment normalizes toward that level, there could still be meaningful upside even after the recent rally.

Explore the SWS fair ratio for Federal National Mortgage Association

Result: Price-to-Sales of 2.3x (UNDERVALUED)

However, sustained net losses and any slowdown in modest revenue growth could quickly undermine confidence in FNMA's turnaround and valuation rerating.

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

Another View: Our DCF Model Paints a Harsher Picture

While the price to sales story hints at upside, our SWS DCF model is far less generous. It suggests FNMA's fair value is closer to $2, meaning the stock looks materially overvalued on this lens. Which narrative will the market ultimately believe?

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 National Mortgage Association 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 912 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 National Mortgage Association Narrative

If you see the story differently or would rather dig into the numbers yourself, you can build a custom view in under three 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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