Head-To-Head Comparison: AFC Gamma (NASDAQ:AFCG) versus Redwood Trust (NYSE:RWT)

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

Institutional & Insider Ownership

74.3% of Redwood Trust shares are owned by institutional investors. Comparatively, 26.5% of AFC Gamma shares are owned by institutional investors. 2.5% of Redwood Trust shares are owned by company insiders. Comparatively, 25.1% of AFC Gamma shares are owned 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.

Profitability

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

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

Risk and Volatility

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

Dividends

Redwood Trust pays an annual dividend of $0.72 per share and has a dividend yield of 12.8%. AFC Gamma pays an annual dividend of $0.53 per share and has a dividend yield of 18.8%. Redwood Trust pays out -118.0% of its earnings in the form of a dividend. AFC Gamma pays out -55.8% 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.

Analyst Ratings

This is a summary of recent recommendations for Redwood Trust and AFC Gamma, as provided by MarketBeat.com.

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

Redwood Trust presently has a consensus price target of $6.96, suggesting a potential upside of 23.92%. AFC Gamma has a consensus price target of $4.50, suggesting a potential upside of 59.57%. Given AFC Gamma’s higher probable upside, analysts clearly believe AFC Gamma is more favorable than Redwood Trust.

Valuation & Earnings

This table compares Redwood Trust and AFC Gamma”s revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Redwood Trust	$1.18 billion	0.59	-$70.03 million	($0.61)	-9.20
AFC Gamma	$31.32 million	2.12	-$20.67 million	($0.95)	-2.97

AFC Gamma has lower revenue, but higher earnings 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.

Summary

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

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.

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.