Long-established in the REITs industry, Rithm Capital Corp (RITM, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 3.92%, juxtaposed with a three-month change of 0.73%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Rithm Capital Corp.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 3/10
- Profitability rank: 3/10
- Growth rank: 0/10
- GF Value rank: 4/10
- Momentum rank: 10/10
Based on the above method, GuruFocus assigned Rithm Capital Corp the GF Score of 56 out of 100, which signals poor future outperformance potential.
Snapshot of Rithm Capital Corp's Business
Rithm Capital Corp operates as a real estate investment trust that provides capital and services to the real estate and financial services industries. The company's mission is to generate attractive risk-adjusted returns in all interest rate environments through a complementary portfolio of investments and operating businesses. Rithm Capital's investment portfolio is composed of mortgage servicing related assets (full and excess MSRs and servicer advances), residential securities (and associated call rights) and loans (including single family rental), and consumer loans. With a market cap of $4.4 billion and sales of $2.2 billion, the company's operating margin currently stands at 0.
Financial Strength Analysis
Rithm Capital Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company's low cash-to-debt ratio at 0.06 indicates a struggle in handling existing debt levels. The company's debt-to-equity ratio is 3.33, which is worse than 94.11% of 679 companies in the REITs industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 9999, which is above Joel Tillinghast's warning level of 4 and is worse than 0% of 530 companies in the REITs industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Profitability Analysis
Rithm Capital Corp's low Profitability rank can also raise warning signals. Rithm Capital Corp's Net Margin has declined over the past five years (-60.93%), as shown by the following data: 2018: 69.01; 2019: 43.65; 2020: 536.75; 2021: 29.68; 2022: 26.96; .
Growth Prospects
A lack of significant growth is another area where Rithm Capital Corp seems to falter, as evidenced by the company's low Growth rank. Lastly, Rithm Capital Corp predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While Rithm Capital Corp has a history of strong performance, current indicators suggest that it may struggle to maintain this trend. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
