Over the past six months, PennyMac Financial Services has been a great trade, beating the S&P 500 by 11.6%. Its stock price has climbed to $127.26, representing a healthy 28.5% increase. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Following the strength, is PFSI a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free for active Edge members.
Why Does PFSI Stock Spark Debate?
Founded during the 2008 financial crisis to help address the mortgage market meltdown, PennyMac Financial Services (NYSE: PFSI) is a specialty financial services company that originates, services, and manages investments related to residential mortgage loans in the United States.
Two Things to Like:
1. EPS Surges Higher Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
PennyMac Financial Services’s EPS grew at an astounding 56.3% compounded annual growth rate over the last two years, higher than its 20.7% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
2. Substandard TBVPS Growth Indicates Limited Asset Expansion
For banks, tangible book value per share (TBVPS) is a crucial metric that measures the actual value of shareholders’ equity, stripping out goodwill and other intangible assets that may not be recoverable in a worst-case scenario.
Although PennyMac Financial Services’s TBVPS increased by 15% annually over the last five years, growth has recently decelerated to a mediocre 8.8% over the past two years (from $68.49 to $81.12 per share).
One Reason to be Careful:
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.
PennyMac Financial Services’s net interest income has grown at a 7.1% annualized rate over the last five years, slightly worse than the broader banking industry.
Final Judgment
PennyMac Financial Services’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 1.5× forward P/B (or $127.26 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
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