Financial Analysis: Redwood Trust (NYSE:RWT) & Ladder Capital (NYSE:LADR)

Ladder Capital (NYSE:LADR) and Redwood Trust (NYSE:RWT) are both small-cap finance companies, but which is the better investment? We will compare the two companies based on the strength of their institutional ownership, profitability, valuation, analyst recommendations, dividends, earnings and risk.

Profitability

This table compares Ladder Capital and Redwood Trust’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Ladder Capital	19.26%	6.70%	2.19%
Redwood Trust	-8.62%	9.19%	0.47%

Valuation and Earnings

This table compares Ladder Capital and Redwood Trust”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Ladder Capital	$506.84 million	2.82	$108.25 million	$0.63	17.79
Redwood Trust	$945.16 million	0.76	$54.00 million	($0.81)	-6.96

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

Insider and Institutional Ownership

62.3% of Ladder Capital shares are owned by institutional investors. Comparatively, 74.3% of Redwood Trust shares are owned by institutional investors. 12.0% of Ladder Capital shares are owned by company insiders. Comparatively, 2.5% of Redwood Trust shares are owned by company insiders. Strong institutional ownership is an indication that hedge funds, large money managers and endowments believe a company is poised for long-term growth.

Risk & Volatility

Ladder Capital has a beta of 1.02, meaning that its stock price is 2% more volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 1.59, meaning that its stock price is 59% more volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of recent recommendations and price targets for Ladder Capital and Redwood Trust, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ladder Capital	0	2	1	1	2.75
Redwood Trust	1	2	4	0	2.43

Ladder Capital presently has a consensus price target of $12.00, suggesting a potential upside of 7.05%. Redwood Trust has a consensus price target of $6.75, suggesting a potential upside of 19.79%. Given Redwood Trust’s higher probable upside, analysts plainly believe Redwood Trust is more favorable than Ladder Capital.

Dividends

Ladder Capital pays an annual dividend of $0.92 per share and has a dividend yield of 8.2%. Redwood Trust pays an annual dividend of $0.72 per share and has a dividend yield of 12.8%. Ladder Capital pays out 146.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Redwood Trust pays out -88.9% of its earnings in the form of a dividend. Redwood Trust has raised its dividend for 1 consecutive years. Redwood Trust is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

About Ladder Capital

Ladder Capital Corp operates as an internally-managed real estate investment trust in the United States. It operates through three segments: Loans, Securities, and Real Estate. The Loans segment originates conduit first mortgage loans that are secured by cash-flowing commercial real estate; and originates and invests in balance sheet first mortgage loans secured by commercial real estate properties that are undergoing transition, including lease-up, sell-out, and renovation or repositioning. It also invests in note purchase financings, subordinated debt, mezzanine debt, and other structured finance products related to commercial real estate. The Securities segment invests in commercial mortgage-backed securities, U.S. treasury and agency, corporate bonds, and equity securities. The Real Estate segment owns and invests in a portfolio of commercial and residential real estate properties, such as leased properties, office buildings, student housing portfolios, hotels, industrial buildings, shopping center, and condominium units. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was founded in 2008 and is headquartered in New York, New York.

About Redwood Trust

Redwood Trust, Inc., together with its subsidiaries, operates as a specialty finance company in the United States. The company operates through three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking, and Investment Portfolio. The Residential Consumer Mortgage Banking segment operates a mortgage loan conduit that acquires residential loans from third-party originators for subsequent sale, securitization, or transfer to its investment portfolio. This segment also offers derivative financial instruments to manage risks associated with residential loans. The Residential Investor Mortgage Banking segment operates a platform that originates business purpose loans to investors in single-family and multifamily residential properties and bridge loans for subsequent securitization, sale, or transfer into its investment portfolio. The Investment Portfolio segment invests in securities retained from residential consumer and investor securitization activities, and business purpose lending bridge loans, as well as residential mortgage-backed securities issued by third parties, Freddie Mac K-Series multifamily loan securitizations and reperforming loan securitizations, servicer advance investments, home equity investments, and other housing-related investments. The company is elected to be taxed as a real estate investment trust (REIT) for federal income tax purposes. Redwood Trust, Inc. was incorporated in 1994 and is headquartered in Mill Valley, California.