One of Wall Street's biggest winners of the day is UWM, a diversified financial company whose shares have climbed 5.3% to a price of $6.22 -- 18.36% below its average analyst target price of $7.62.
The average analyst rating for the stock is hold. UWMC may have outstripped the S&P 500 index by 5.0% so far today, but it has lagged behind the index by 24.9% over the last year, returning 5.0%.
UWM Holdings Corporation engages in the residential mortgage lending business in the United States. The company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.
UWM does not release its trailing 12 month P/E ratio since its earnings per share of $-0.23 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for UWMC of -27.1. Based on the company's positive earnings guidance of $0.46, the stock has a forward P/E ratio of 13.8.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the finance sector has an average P/E ratio of 20.04, and the average for the S&P 500 is 29.3.
UWM's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 165,244 | 26,434 | 138,810 | -98.32 |
| 2022 | 8,268,182 | 26,615 | 8,241,567 | 182.23 |
| 2021 | -9,956,963 | 65,384 | -10,022,347 | -1144003.54 |
| 2020 | 56,412 | 57,288 | -876 | 99.98 |
| 2019 | -3,496,012 | 16,775 | -3,512,787 |
- Average free cash flow: $-1031126600.0
- Average free cash flown growth rate: 1.9 %
- Coefficient of variability (lower numbers indicating more stability): 0.06 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in UWMC have received an annualized dividend yield of 6.8% on their capital.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.
UWM's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 5, so the company's assets may be overvalued compared to the average P/B ratio of the Finance sector, which stands at 1.86 as of the third quarter of 2024.
With a negative P/E ratio., a higher than Average P/B Ratio, and negative cash flows with a flat trend, we can conclude that UWM is probably overvalued at current prices. The stock presents poor growth indicators because of its with a negative growth trend, and no PEG ratio.
