Is Fannie Mae (FNMA) Undervalued? Evaluating Valuation After Recent Momentum in Share Price

Federal National Mortgage Association (FNMA) stock has been in the spotlight due to its recent momentum. Over the past month, shares have gained 11%, making it an interesting case for investors seeking financial sector exposure.

See our latest analysis for Federal National Mortgage Association.

Federal National Mortgage Association's share price has climbed steadily this year, with momentum building following its recent 11% one-month gain. While the latest uptick is drawing new attention, the stock’s 9.8% total shareholder return over the past year shows that patient holders have also been rewarded.

If this wave of financial sector momentum has you thinking bigger, now could be the perfect chance to discover fast growing stocks with high insider ownership

With shares up strongly, is Federal National Mortgage Association trading below its true value, or have investors already factored in expectations for future growth? This may be a crucial moment to consider possible upside.

Price-to-Sales Ratio of 2.5x: Is it justified?

Federal National Mortgage Association's shares trade at a price-to-sales (P/S) ratio of 2.5x, placing the last close at $12.58. This signals that the market values the company’s revenue more conservatively than many of its peers and the sector average.

The price-to-sales ratio compares a firm's market capitalization to its total revenue, giving a sense of how much investors are willing to pay per dollar of sales. In the financial sector, especially for companies like FNMA that are currently unprofitable, P/S is often the preferred metric because it focuses on top-line performance when earnings are negative or volatile.

On this basis, FNMA appears to be attractively valued, trading not only below the peer average (3.9x) but also beneath the US Diversified Financial industry average (2.9x). Relative to its fundamental footprint, the 2.5x multiple suggests that the market could be underestimating FNMA's ability to convert sales into future growth. In addition, regression analysis points to a fair price-to-sales ratio of 7.6x, highlighting significant potential for upward rerating if market sentiment shifts.

Explore the SWS fair ratio for Federal National Mortgage Association

Result: Price-to-Sales Ratio of 2.5x (UNDERVALUED)

However, investors should note the current share price stands above analyst targets, and limited revenue growth could present challenges to sustained upside in the near term.

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

Build Your Own Federal National Mortgage Association Narrative

If you see things differently or want a deeper dive into the numbers, you can craft your own perspective in just a few 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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