Is It Still a Good Time to Invest in Ellington Financial After Its 2025 Price Surge?
If you are wondering whether Ellington Financial is still good value after its recent run, or if you have already missed the easy money, you are not alone. We are going to unpack that in plain English.
The stock has climbed 12.8% year to date and 26.0% over the last year, adding to a longer term gain of 66.1% over five years. Investors are clearly reassessing its risk and income profile.
Recently, the market has been reacting to shifts in interest rate expectations and evolving sentiment toward mortgage REITs and credit focused financials. These shifts directly shape how investors value Ellington Financial’s portfolio and dividend sustainability. At the same time, sector wide conversations about credit quality, funding costs, and refinancing risk have made income names like Ellington more sensitive to macro headlines, not just company specific developments.
Even after that performance, Ellington Financial earns a valuation score of 5/6 on our checks, suggesting it still screens as undervalued on most metrics. Next we will walk through the main valuation approaches analysts use, before finishing with a more holistic way to think about what the stock is really worth.
The Excess Returns model evaluates how much profit Ellington Financial can generate above the return that investors demand on its equity, then capitalizes those surplus profits into an intrinsic value per share.
For Ellington, the starting point is a Book Value of $13.52 per share and a Stable EPS of $1.72 per share, based on weighted future Return on Equity estimates from 4 analysts. The implied Cost of Equity is $1.28 per share, so the company is expected to earn an Excess Return of $0.44 per share. That reflects an Average Return on Equity of 12.33%, which is meaningfully above the required return built into the model.
Using a Stable Book Value of $13.93 per share, derived from estimates by 5 analysts, the model extends these excess returns into the future to arrive at an intrinsic value of about $21.34 per share. Compared with the current share price, this indicates roughly a 35.7% discount, meaning the stock screens as materially undervalued within this framework.
For consistently profitable companies like Ellington Financial, the Price to Earnings (PE) ratio is a useful way to gauge what investors are willing to pay for each dollar of current earnings. It links today’s share price directly to the earnings power that ultimately supports dividends and future growth.
In practice, a higher growth outlook and lower perceived risk justify a higher PE, while slower growth or higher risk pull a fair multiple down. Ellington currently trades on a PE of 11.64x. That is below both the Mortgage REITs industry average of about 13.14x and the broader peer group average around 18.66x. This suggests the market is applying a discount to its earnings.
Simply Wall St’s Fair Ratio framework refines this comparison by estimating what PE Ellington should trade on given its earnings growth profile, margins, risk factors, industry, and market cap. For Ellington, the Fair Ratio comes out at 13.49x. This implies the stock would merit a somewhat higher multiple than the market is currently assigning. Since 11.64x is meaningfully below 13.49x, the PE-based view indicates the shares may still be attractively priced.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple framework that lets you attach a clear story to your numbers, including the fair value you think Ellington Financial deserves and the revenue, earnings, and margin paths you expect it to follow.
A Narrative connects three pieces: what you believe is happening in the business, how that flows into a financial forecast, and what fair value falls out of that forecast. This helps you see exactly why your numbers make sense. On Simply Wall St, Narratives sit in the Community page, where many investors use them as an easy, accessible tool to compare their view of Fair Value to the current Price.
Because Narratives update dynamically as new information, such as earnings or major news, comes in, your view of Ellington can stay current, and you can see how other investors differ. For example, some may expect fair value closer to 16.0 dollars based on one set of assumptions, while others may see it closer to 13.5 dollars based on different expectations about margins and risk.
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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