Annaly Capital Management trades at $22.31 per share and has stayed right on track with the overall market, gaining 14.5% over the last six months. At the same time, the S&P 500 has returned 13.9%.
Is now the time to buy Annaly Capital Management, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Do We Think Annaly Capital Management Will Underperform?
We're sitting this one out for now. Here are three reasons there are better opportunities than NLY and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
Annaly Capital Management’s net interest income has grown at a 4.7% annualized rate over the last five years, much worse than the broader banking industry.
2. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) serves as a critical gauge of a bank's fundamental profitability by showing the spread between interest income and interest expenses. It's essential for understanding whether a firm can sustainably generate returns from its lending operations.
Over the past two years, we can see that Annaly Capital Management’s net interest margin averaged a poor breakeven, reflecting its high servicing and capital costs.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Annaly Capital Management, its EPS and revenue declined by 7.3% and 22% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Annaly Capital Management’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
We cheer for all companies supporting the economy, but in the case of Annaly Capital Management, we’ll be cheering from the sidelines. That said, the stock currently trades at 1.1× forward P/B (or $22.31 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.
Stocks We Would Buy Instead of Annaly Capital Management
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