Two Harbors Investment (TWO) is back on many watchlists after recent share moves, with returns over the month and past 3 months contrasting with mixed longer term performance and ongoing questions around its mortgage focused REIT model.

Short term momentum has cooled, with a 1 day share price return of 13.69% decline and a 7 day share price return of 14.21% decline. However, the 90 day share price return of 18.98% and 1 year total shareholder return of 3.33% show a more mixed picture.

If recent volatility in mortgage focused REITs has you reassessing income ideas, it could be a useful moment to widen the lens and check out fast growing stocks with high insider ownership.

With shares recently at $11.47 and an implied discount to both analyst targets and some intrinsic estimates, the key question is whether Two Harbors is genuinely undervalued or if the market is already factoring in any future improvement.

Preferred Price to Sales of 2.2x: Is it justified?

On a P/S of 2.2x, Two Harbors Investment screens cheaper than both peers and the broader US Mortgage REITs group, even after recent share price swings.

The P/S multiple compares the company’s market value to its revenue. It is often used for financial firms where traditional earnings based metrics are less stable. For Two Harbors, revenue of $532.2m and a reported loss of $242.6m mean investors are effectively paying for the revenue stream while current profitability remains negative.

Relative to the US Mortgage REITs peer average P/S of 5.6x and the industry average of 4.9x, the current 2.2x looks materially lower. This suggests the market is attaching a lower value to each dollar of sales than it does for many similar businesses. However, compared with an estimated fair P/S ratio of 0.3x, the current multiple sits significantly higher. This points to a level the share price could move toward if sentiment or assumptions around revenue quality and future earnings were to reset.

Result: Price-to-Sales of 2.2x (UNDERVALUED versus peers, EXPENSIVE versus estimated fair ratio)

However, you still need to weigh a revenue decline of 145.26% and a reported net loss of US$242.6m, which could keep pressure on sentiment and payouts.

Another view on value: DCF tells a different story

The first check on Two Harbors focused on its 2.2x P/S, which looks cheap versus peers but expensive versus the fair ratio. Our DCF model points the other way and suggests the shares at $11.47 trade below an estimated future cash flow value of $16.55. This frames current pricing as potentially conservative rather than stretched. So which lens do you trust more for a mortgage focused REIT with losses today?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Two Harbors Investment for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 875 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Two Harbors Investment Narrative

If you look at the numbers and come to a different conclusion, or simply prefer to rely on your own homework, you can build and refine a full view in just a few minutes with Do it your way

A great starting point for your Two Harbors Investment research is our analysis highlighting 3 key rewards and 1 important warning sign 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.