• Investors may be wondering if AGNC Investment at around US$11.02 is still offering value, or if most of the easy gains are already on the table.
• The stock has recent returns of 1.1% over 7 days, 8.7% over 30 days, 0.8% year to date, 43.9% over 1 year, 71.5% over 3 years and 19.8% over 5 years. This provides plenty of data points to weigh potential reward against risk.
• Recent headlines around AGNC Investment have focused on its position in the mortgage REIT space and ongoing interest in income focused names. This helps explain why investors have been paying close attention to the share price. Market commentary has also highlighted how changing rate expectations continue to shape sentiment toward companies with interest sensitive portfolios.
• AGNC Investment currently holds a value score of 5/6. The sections that follow will compare different valuation approaches before finishing with a broader way to think about what this score might mean for you.

Approach 1: AGNC Investment Excess Returns Analysis

The Excess Returns model looks at how much profit a company can generate above the return that equity investors require, then capitalizes those “excess” profits into an estimate of fair value per share.

For AGNC Investment, the model starts with a Book Value of $8.90 per share and a Stable EPS estimate of $1.54 per share, based on weighted future Return on Equity estimates from 6 analysts. The average Return on Equity is 16.21%. Against this, the Cost of Equity is $0.92 per share, which implies an Excess Return of $0.61 per share on the current equity base.

The Stable Book Value is $9.47 per share, based on weighted future Book Value estimates from 4 analysts. Feeding these inputs into the Excess Returns framework produces an intrinsic value estimate of about $19.12 per share. Compared with the recent share price around $11.02, this indicates AGNC Investment is trading at roughly a 42.4% discount to this model’s estimate of fair value.

Result: UNDERVALUED

Our Excess Returns analysis suggests AGNC Investment is undervalued by 42.4%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.

Approach 2: AGNC Investment Price vs Earnings

For profitable companies, the P/E ratio is a straightforward way to relate what you pay per share to the earnings that each share generates. It helps you see how much the market is paying for each dollar of profit, which is especially useful when earnings are a key driver of investor interest.

What counts as a “normal” or “fair” P/E ratio tends to move with expectations for earnings growth and risk. Higher growth or lower perceived risk usually supports a higher multiple, while slower growth or higher perceived risk often lines up with a lower multiple.

AGNC Investment currently trades on a P/E of 9.71x. That sits close to both the Mortgage REITs industry average P/E of 9.97x and a peer average of 10.03x, so on simple comparisons the valuation looks broadly in line with its sector. Simply Wall St’s Fair Ratio for AGNC Investment is 13.45x, which reflects a proprietary view of what the P/E could be given factors like earnings characteristics, industry, profit margins, market cap and key risks. This Fair Ratio can be more tailored than basic peer or industry checks because it blends these company specific inputs into a single benchmark. Comparing the current 9.71x P/E to the 13.45x Fair Ratio suggests the shares are trading below this tailored multiple.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your AGNC Investment Narrative

Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St's Community page you can use Narratives, where you set a clear story for AGNC Investment, link that story to explicit assumptions for revenue, earnings, margins and fair value, then see in real time whether your fair value suggests the US$8.30 share price looks high or low. The Narrative automatically updates as new news or earnings arrive. Two investors might reasonably differ, for example one assuming the more optimistic US$11.00 price target with stronger Agency MBS conditions and another anchoring to the US$8.25 target with more weight on interest rate and policy risks, each with a transparent path from story to numbers to fair value.

Do you think there's more to the story for AGNC Investment? Head over to our Community to see what others are saying!

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.