Head to Head Review: Redwood Trust (NYSE:RWT) & AFC Gamma (NASDAQ:AFCG)

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

Profitability

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

	Net Margins	Return on Equity	Return on Assets
AFC Gamma	-70.17%	0.99%	0.62%
Redwood Trust	-5.93%	12.00%	0.54%

Valuation and Earnings

This table compares AFC Gamma 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
AFC Gamma	$31.32 million	2.00	-$20.67 million	($0.95)	-2.80
Redwood Trust	$1.18 billion	0.56	-$70.03 million	($0.61)	-8.68

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

Institutional and Insider Ownership

26.5% of AFC Gamma shares are held by institutional investors. Comparatively, 74.3% of Redwood Trust shares are held by institutional investors. 25.1% of AFC Gamma shares are held by company insiders. Comparatively, 2.7% of Redwood Trust shares are held by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Risk & Volatility

AFC Gamma has a beta of 1.02, indicating that its share price is 2% more volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 1.55, indicating that its share price is 55% more volatile than the S&P 500.

Analyst Recommendations

This is a breakdown of current ratings for AFC Gamma and Redwood Trust, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
AFC Gamma	2	1	0	0	1.33
Redwood Trust	1	2	5	1	2.67

AFC Gamma presently has a consensus price target of $4.50, indicating a potential upside of 69.17%. Redwood Trust has a consensus price target of $6.96, indicating a potential upside of 31.41%. Given AFC Gamma’s higher probable upside, equities research analysts plainly believe AFC Gamma is more favorable than Redwood Trust.

Dividends

AFC Gamma pays an annual dividend of $0.53 per share and has a dividend yield of 19.9%. Redwood Trust pays an annual dividend of $0.72 per share and has a dividend yield of 13.6%. AFC Gamma pays out -55.8% of its earnings in the form of a dividend. Redwood Trust pays out -118.0% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Redwood Trust has increased its dividend for 1 consecutive years.

Summary

Redwood Trust beats AFC Gamma on 11 of the 18 factors compared between the two stocks.

About AFC Gamma

AFC Gamma, Inc. originates, structures, underwrites, and invests in senior secured loans, and other various commercial real estate loans and debt securities for established companies operating in the cannabis industry. It primarily originates loans structured as senior loans secured by real estate, equipment, and licenses and/or other assets of the loan parties to the extent permitted by applicable laws and the regulations governing such loan parties. The company has elected and qualified to be taxed as a real estate investment trust for the United States federal income tax purposes under the Internal Revenue Code of 1986. AFC Gamma, Inc. was incorporated in 2020 and is based in West Palm Beach, Florida.

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.