Contrasting Redwood Trust (RWT) & Great Ajax Corp. (AJX)

Redwood Trust (NYSE: RWT) and Great Ajax Corp. (NYSE:AJX) are both small-cap finance companies, but which is the superior business? We will contrast the two businesses based on the strength of their institutional ownership, profitability, earnings, risk, dividends, valuation and analyst recommendations.

Risk and Volatility

Redwood Trust has a beta of 0.88, indicating that its stock price is 12% less volatile than the S&P 500. Comparatively, Great Ajax Corp. has a beta of 0.87, indicating that its stock price is 13% less volatile than the S&P 500.

Insider and Institutional Ownership

85.8% of Redwood Trust shares are owned by institutional investors. Comparatively, 75.3% of Great Ajax Corp. shares are owned by institutional investors. 2.3% of Redwood Trust shares are owned by company insiders. Comparatively, 3.8% of Great Ajax Corp. shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Earnings & Valuation

This table compares Redwood Trust and Great Ajax Corp.’s gross revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Redwood Trust $215.70 million 5.87 $134.95 million $1.75 9.38
Great Ajax Corp. $50.65 million 4.90 $27.67 million $1.57 8.96

Redwood Trust has higher revenue and earnings than Great Ajax Corp.. Great Ajax Corp. is trading at a lower price-to-earnings ratio than Redwood Trust, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a breakdown of current recommendations and price targets for Redwood Trust and Great Ajax Corp., as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Redwood Trust 0 0 0 0 N/A
Great Ajax Corp. 0 2 2 0 2.50

Great Ajax Corp. has a consensus price target of $15.13, indicating a potential upside of 7.50%. Given Great Ajax Corp.’s higher possible upside, analysts clearly believe Great Ajax Corp. is more favorable than Redwood Trust.

Profitability

This table compares Redwood Trust and Great Ajax Corp.’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Redwood Trust 46.04% 12.02% 2.50%
Great Ajax Corp. 58.46% 10.22% 3.02%

Dividends

Redwood Trust pays an annual dividend of $1.12 per share and has a dividend yield of 6.8%. Great Ajax Corp. pays an annual dividend of $1.20 per share and has a dividend yield of 8.5%. Redwood Trust pays out 64.0% of its earnings in the form of a dividend. Great Ajax Corp. pays out 76.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Summary

Redwood Trust beats Great Ajax Corp. on 9 of the 15 factors compared between the two stocks.

About Redwood Trust

Redwood Trust, Inc., through its subsidiaries, focuses on investing in mortgage and other real estate related assets. The Company is engaged in mortgage banking activities. The Company operates through three segments: Residential Investments, Residential Mortgage Banking and Commercial. The Residential Investments segment includes a portfolio of investments in residential mortgage-backed securities (RMBS) retained from its Sequoia securitizations. The Residential Mortgage Banking segment consists of operating a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. Its Commercial segment consists of investments in multi-family securities and commercial mortgage-backed securities, as well as a remaining commercial loan investment following the sale of the remainder of its commercial mezzanine loan portfolio.

About Great Ajax Corp.

Great Ajax Corp. is an externally managed real estate company. The Company is focused on acquiring, investing in and managing a portfolio of re-performing and non-performing mortgage loans secured by single-family residences and single-family properties. Its segment is focused on non-performing mortgages and re-performing mortgages. It also invests in loans secured by multi-family residential and commercial mixed use retail/residential properties, as well as in the properties directly. It also holds real estate-owned properties (REO) acquired upon the foreclosure or other settlement of its owned non-performing loans, as well as through outright purchases. It is managed by Thetis Asset Management LLC, an affiliated entity. Its mortgage loans and other real estate assets are serviced by Gregory Funding LLC, an affiliated entity. The Company conducts its business through its operating partnership, Great Ajax Operating Partnership L.P.

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