If you’ve been watching Annaly Capital Management lately and wondering whether now is the moment to get in or lock in some profits, you’re not alone. The stock has had a rollercoaster ride recently, picking up 1.3% in the last week, even after sliding 5.0% over the past month. For those holding on since the start of the year, it’s been a pleasant surprise. Annaly is up an impressive 13.2% year-to-date, and over the past year, the stock has delivered a solid gain of 18.0%. Zoom out even further and you’ll see that the last three years brought holders a remarkable 87.0% return, with a longer five-year window still clocking in at 38.4% growth. All of this comes against a backdrop of shifting market dynamics, with investor sentiment toward mortgage REITs like Annaly Capital Management evolving as interest rates and inflation expectations continue to shape the risk landscape.

Of course, the real question isn’t just about where the stock’s been, but whether Annaly is trading at a fair price today. Using our checklist of common valuation methods, Annaly scores a 3 out of 6, suggesting it is undervalued in half of the most important ways we evaluate a company. That’s a great starting point for a value-focused investor, but as you’ll see in the next section, the real story comes out when we break down how each of these valuation approaches stacks up and why there may be an even more useful way to understand what this score means for your portfolio.

Annaly Capital Management delivered 18.0% returns over the last year. See how this stacks up to the rest of the Mortgage REITs industry.

The Excess Returns model calculates a company’s value by estimating how much profit it generates above its cost of equity. This approach focuses on the returns Annaly Capital Management can deliver relative to shareholders’ capital.

According to this approach, Annaly’s return on equity averages 16.00%, with a projected stable EPS of $3.10 per share and a cost of equity at $2.02 per share. This translates to an excess return of $1.08 per share, highlighting consistent profitability above the required rate. The current book value per share is $18.45, and analysts expect this to stabilize at $19.35 per share in the future. This reflects a robust outlook for the company’s equity base.

This model, based on the weighted estimates of five analysts for EPS and six analysts for future book value, points to Annaly’s capacity to generate steady and attractive returns for investors. The intrinsic discount implied by the Excess Returns valuation indicates the stock is 38.8% undervalued compared to its fair value of $33.97 per share.

Overall, these figures suggest Annaly Capital Management is trading at a significant discount versus what long-term excess returns would justify. Investors focused on return on invested capital may see clear value here.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Annaly Capital Management.

Our Excess Returns analysis suggests Annaly Capital Management is undervalued by 38.8%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

For profitable companies like Annaly Capital Management, the price-to-earnings (PE) ratio is a widely used valuation tool because it places a company’s current share price in the context of its profitability. Investors regularly use this multiple to get a sense of how much they’re paying for each dollar of annual earnings. However, what qualifies as a “normal” or “fair” PE ratio depends on a company’s expected growth and risk profile, as faster-growing or lower-risk firms typically justify higher multiples.

Annaly currently trades at a PE ratio of 23.2x. This is noticeably higher than the Mortgage REITs industry average of 12.8x and above the peer average of 17.7x. At first glance, this suggests the market is pricing in higher relative expectations for Annaly’s growth and earnings quality compared to its sector rivals.

To better evaluate valuation, Simply Wall St’s Fair Ratio model estimates a fair PE for Annaly at 24.9x. This proprietary metric accounts for the company’s outlook on earnings growth, profit margin, market capitalization, risks, and industry dynamics. This makes it more insightful than a simple industry or peer comparison. In Annaly’s case, the current PE multiple is very close to its Fair Ratio, indicating the stock is sensibly valued based on its fundamentals and prospects.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. Narratives are a simple and powerful tool that lets you create your own story about a company by blending your perspective and expectations with core numbers like future revenue, earnings, and margins to arrive at your personal view of fair value.

A Narrative connects your understanding of a company’s business model, opportunities, and risks to a financial forecast, and then automatically transforms those assumptions into an estimated fair value, providing a clearer decision-making framework. Available to everyone on Simply Wall St’s Community page, Narratives make it easy for anyone, not just financial experts, to combine facts, forecasts, and their interpretation of recent events, making investing both personal and evidence-driven.

With Narratives, investors can quickly see how their assumptions compare to the current share price. When news or earnings updates are released, Narratives adapt in real time, helping you keep your analysis relevant and actionable. For example, while some users may believe Annaly will achieve aggressive profit margin improvements and assign a $33 fair value, others might be more conservative, forecasting modest growth and a $21 fair value. Both perspectives become clear and comparable with Narratives.

Do you think there's more to the story for Annaly Capital Management? 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.

Companies discussed in this article include NLY.

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