Head to Head Analysis: Ready Capital (NYSE:RC) & Redwood Trust (NYSE:RWT)

Ready Capital (NYSE:RC) 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 earnings, valuation, institutional ownership, risk, profitability, analyst recommendations and dividends.

Valuation & Earnings

This table compares Ready 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
Ready Capital	$896.97 million	0.38	-$435.76 million	($1.91)	-1.09
Redwood Trust	$135.31 million	5.24	$54.00 million	($0.81)	-6.91

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

Analyst Recommendations

This is a summary of current ratings and price targets for Ready Capital and Redwood Trust, as provided by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Ready Capital	2	6	0	0	1.75
Redwood Trust	1	2	4	0	2.43

Ready Capital presently has a consensus price target of $3.55, indicating a potential upside of 70.26%. Redwood Trust has a consensus price target of $6.75, indicating a potential upside of 20.64%. Given Ready Capital’s higher possible upside, research analysts clearly believe Ready Capital is more favorable than Redwood Trust.

Institutional & Insider Ownership

55.9% of Ready Capital shares are held by institutional investors. Comparatively, 74.3% of Redwood Trust shares are held by institutional investors. 1.1% of Ready Capital shares are held by insiders. Comparatively, 2.7% of Redwood Trust shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Profitability

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

	Net Margins	Return on Equity	Return on Assets
Ready Capital	-47.30%	-7.02%	-1.36%
Redwood Trust	-8.62%	9.19%	0.47%

Volatility and Risk

Ready Capital has a beta of 1.46, meaning that its stock price is 46% more volatile than the S&P 500. Comparatively, Redwood Trust has a beta of 1.58, meaning that its stock price is 58% more volatile than the S&P 500.

Dividends

Ready Capital pays an annual dividend of $0.04 per share and has a dividend yield of 1.9%. Redwood Trust pays an annual dividend of $0.72 per share and has a dividend yield of 12.9%. Ready Capital pays out -2.1% of its earnings in the form of a dividend. Redwood Trust pays out -88.9% 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. Redwood Trust is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Redwood Trust beats Ready Capital on 14 of the 17 factors compared between the two stocks.

About Ready Capital

Ready Capital Corporation operates as a real estate finance company in the United States. It operates through two segments: LMM Commercial Real Estate and Small Business Lending. The company originates, acquires, finances, and services lower-to-middle-market (LLM) commercial real estate loans, small business administration (SBA) loans, residential mortgage loans, construction loans, and mortgage-backed securities collateralized primarily by LLM loans, or other real estate-related investments. The LMM Commercial Real Estate segment originates LLM loans across the full life-cycle of an LLM property, including construction, bridge, stabilized, and agency loan origination channels. The Small Business Lending segment acquires, originates, and services owner-occupied loans guaranteed by the SBA under its SBA Section 7(a) Program; and acquires purchased future receivables. The company has elected to be taxed as a real estate investment trust (REIT) and 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 formerly known as Sutherland Asset Management Corporation and changed its name to Ready Capital Corporation in September 2018. Ready Capital Corporation was founded in 2007 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.