• This article reviews Ellington Financial's recent numbers so you can consider for yourself whether the current price represents good value.
• The stock last closed at US$13.24, with returns of 0.8% over 7 days, 11.3% over 30 days, a 3.2% decline year to date, and 14.6% over the past year, which provides a mixed picture of sentiment and risk.
• Recent company updates and sector headlines around mortgage REITs have kept attention on funding costs and asset quality. This context helps frame how investors view Ellington Financial's risks and opportunities, while markets continuously reassess what a fair price might be.
• On Simply Wall St's valuation checks, Ellington Financial scores 2 out of 6. A logical next step is to compare different valuation methods and then consider a broader perspective on what the stock might be worth beyond the usual models.

Ellington Financial scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Ellington Financial Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to generate above the return that equity investors require, then adds that stream of surplus earnings to today’s book value per share.

For Ellington Financial, the model uses a Book Value of US$13.28 per share and a Stable EPS estimate of US$1.80 per share, based on weighted future Return on Equity estimates from 5 analysts. The Cost of Equity is US$1.26 per share, which implies an Excess Return of US$0.54 per share. The Average Return on Equity assumed in this framework is 12.91%, with a Stable Book Value of US$13.93 per share, based on weighted future Book Value estimates from 4 analysts.

Feeding these inputs into the Excess Returns framework produces an estimated intrinsic value of US$23.53 per share. Compared with the recent share price of US$13.24, this implies an intrinsic discount of 43.7%, which suggests the stock is trading at a sizeable gap to this model’s estimate of value.

Result: UNDERVALUED

Our Excess Returns analysis suggests Ellington Financial is undervalued by 43.7%. Track this in your watchlist or portfolio, or discover 51 more high quality undervalued stocks.

Approach 2: Ellington Financial Price vs Earnings

For a profitable company, the P/E ratio is a straightforward way to relate what you pay for each share to the earnings that each share generates. It gives you a simple yardstick to compare what the market is currently asking for those earnings.

What counts as a “normal” or “fair” P/E often reflects how the market views growth potential and risk. Higher expected growth or lower perceived risk can support a higher P/E, while more modest growth expectations or higher risk usually line up with a lower P/E.

Ellington Financial is trading on a P/E of 13.90x. That sits above the Mortgage REITs industry average P/E of 9.87x and above the peer group average of 10.64x. Simply Wall St’s Fair Ratio for Ellington Financial is 13.52x. This is its proprietary view of what the P/E “should” be, taking into account factors such as earnings growth, industry, profit margin, market cap and key risks.

Because the Fair Ratio is tailored to the company’s own profile, it can be more informative than a simple comparison with industry or peers. Ellington Financial’s actual P/E of 13.90x is only slightly above the Fair Ratio of 13.52x, which points to a price that is broadly in line with this framework.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Ellington Financial Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St’s Community page let you attach a clear story about Ellington Financial to your numbers by linking your view of its future revenues, earnings, margins and fair value to a forecast, and then comparing that fair value with the current price. The system updates automatically as news or earnings arrive. This is why one investor might build a more optimistic Narrative closer to the US$16.00 analyst target, while another might lean toward the more cautious US$13.50 view. You can see both side by side to decide which story you find more reasonable.

Do you think there's more to the story for Ellington Financial? 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.