EARN

We rate Ellington Credit Co (EARN) as Avoid with a composite score of 39.7/100 at a current price of $5.11. The stock falls in the bottom quintile of our universe across key quantitative factors, and the multi-factor weakness suggests a high probability of continued underperformance.

The rating is primarily driven by strength in stability (60th percentile) and value (54th percentile), which together account for the majority of the composite score. Offsetting weakness in momentum (21th percentile) and quality (30th percentile) tempers our overall conviction. We assign a No Moat rating (26/100), High uncertainty, and Poor capital allocation.

Key items to watch: momentum to confirm whether the current price trend has legs; balance sheet deleveraging progress; sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Ellington Credit Co holds a top-quartile position (#0 of 50) within the Finance, Insurance, And Real Estate sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 39.7/100 places it at rank #3569 in our full 7,333-stock universe. At $178M in market capitalization, Ellington Credit Co is a small-cap player in the Finance, Insurance, And Real Estate space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 57%, though momentum at the 21th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

Available margin data shows operating margins of -81%. Incomplete margin data limits our ability to fully assess the cost structure and margin trajectory, though the available metrics provide a partial view of operating efficiency.

At a current price of $5.11, Ellington Credit Co is trading near fair value based on current fundamentals. Our value factor score of 54/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 261.6x (a 2093% premium to the sector median of 11.9x), EV/EBITDA of 20.8x (at a premium), P/B of 0.8x, P/S of 10.4x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a High uncertainty rating to Ellington Credit Co. Key risk factors include significant leverage (243% debt-to-equity), weak quality scores (30th percentile), low beta of 0.62 — while defensive, this may indicate limited upside participation in bull markets. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (243% debt-to-equity); weak quality scores (30th percentile); low beta of 0.62 — while defensive, this may indicate limited upside participation in bull markets; elevated valuation multiple (P/E 261.6x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 60th percentile and quality factor at the 30th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (60th percentile) suggests predictable business dynamics; a 15.50% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate Ellington Credit Co's capital allocation as Poor. Key concerns include low returns on equity (0.3%), elevated leverage (243% D/E), weak asset returns (ROA 0.1%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Ellington Credit Co significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Ellington Credit Co receives a Avoid rating with a composite score of 39.7/100 (rank #3569 of 7,333). Our quantitative framework assigns a No Moat (26/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 40/100.

Our analysis does not support a constructive view on Ellington Credit Co at this time. The combination of limited competitive advantages, high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.