What I Think Of ARMOUR Residential REIT, Inc. (ARR)

Leverage – With total debt/equity ratio at 851.57 and a current ratio of 0.1, the high leverage factor increases a lot of risk in terms of future cash flows. If the portfolio yield is not properly managed, this can eat into the shareholders’ equity. While revenue (coupled with operating and net margin) is expected to increase, high leverage should not be a problem. On a side note, if gross margin can be improved with a bit of leverage, then it’s good. For example, Invesco Mortgage Capital Inc (NYSE:IVR)‘s gross margin might improve with a bit of leverage.

Risk -The low beta of 0.22 tells me that the management is taking the cautious route here. While the whole real estate industry is just recovering, the low beta assures me of some safety at least.

Conclusion

It might not be a good time to buy the company, but it definitely is time to start following the regular movements of the stock. With a recovering housing industry, improving fundamentals, and still lower valuations, this might turn out to be a value stock in a few years.

And as they say, you make profit when you buy, not when you sell. So stay tuned to this company.

Source: Q3FY12 report, Google Finance, Yahoo Finance and multiple other sites.

The article What I Think Of ARMOUR Residential REIT originally appeared on Fool.com and is written by Suman Chatterjee.

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