ABR is in stage #2. This is one of the better mREITs out there. I have invested in a few of them in the past and got burned in all of them. I invested in AGNC or ARR. A friend of mine invested in NLY. All three failed. AGNC looked promising but after a year or two when I was invested, they started cutting the dividends. ABR is the only one, so far, that has raised the dividends and also provides capital appreciation. The stock was on a downward spiral since November 2021 but since it hit its bottom in April 2023 it staged an impressive recovery:

 

 

However, the recovery may be impacted by impeding recession (which may not come in the end). The housing market seems to be slowing and mortgage applications falling. The stock also seems very overbought and due for some sort of a pullback.

ABR revenue grew significantly since 2016 at a 20.09% annual rate. The 5-year growth rate is at 20.52% rate. That is a very good growth rate. It slowed in 2022 by about 26%, the stock dropped by 50%. At the end of 2022 it recovered a lot but now we are seeing a slowdown again. That may impact the stock price again.

 

 

The company free cash flow is a bit concerning. As you can see, the company has years with positive cash flow and years with negative cash flows. Since mREITs provide bridge loans they are heavily dependent on the capital available to invest, and free cash flow is important metrics to see how the company operates whether it can rely on their own earnings or leverage.

 

 

And that is another issue we can see here. The company is leveraged to finance its operations. It assumed more debt since 2018 and their debt ballooned in 2021. The good news is that ABR started paying it off at the end of 2022:

 

 

The debt and dilution are how ABR gets their capital to invest. This is not a good sign as we see significant shares outstanding growth at a 10% annual rate. The good thing is that the insiders are well invested in the company and not selling their positions. Currently, the insiders hold 12% of the company.

 

 

Since the company is a mortgage REIT it depends on the health of the housing markets and mortgage market. The company cut the dividend in 2008, which was an obvious consequence of the credit and mortgage crisis. We saw a cut in 2018 but the dividend was quickly reinstated. We see a very stable dividend growth since 2008. The dividend growth is impressive. A 1-year growth is at 10.26% and a 5-year growth sits at 11.46%. Both numbers are very encouraging for any dividend investor.

 

 

ABR’s valuation is a mixed bag. It seems to be slightly undervalued at the current level but since their AFFO is erratic it is hard to assume the proper value. Based on the current metrics the intrinsic value is at $40 a share but that is unreliable. As we have seen, the financial data are so erratic that tomorrow, this will be different.

 

 

 

Overall ABR underperforms the market, though as an income instrument, it could provide a good source of income. However, that can be diminished by the decline in stock price. A good way to invest in this company is when the stock price declines due to market frenzy or irrationality (as we could see in May the stock dropped after a bogus report by Ningi Research, an unknown company with no history of past analysis and the report was full of grammatical errors. The stock dropped almost 50% after the report and it was a good time to buy. Right now the price recovered to the mean and I think it is too late to be buying this type of company. For this reason, I think ABR is a “hold”.

The stock is now HOLD
 

This post was published in our newsletter to our subscribers on Sunday, July 30th, 2023. If you want to learn more about our stock technical analysis subscribe to our weekly newsletter.