Over the last six months, Farmer Mac shares have sunk to $148.64, producing a disappointing 9.7% loss - worse than the S&P 500’s 2.8% drop. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Farmer Mac, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Farmer Mac Not Exciting?
Despite the more favorable entry price, we're cautious about Farmer Mac. Here are three reasons there are better opportunities than AGM and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within financials, a stretched historical view may miss recent interest rate changes, market returns, and industry trends. Farmer Mac’s recent performance shows its demand has slowed as its annualized revenue growth of 3.7% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
2. Recent EPS Growth Below Our Standards
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Farmer Mac’s weak 3.3% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
The debt-to-equity ratio is a widely used measure to assess a company's balance sheet health. A higher ratio means that a business aggressively financed its growth with debt. This can result in higher earnings (if the borrowed funds are invested profitably) but also increases risk.
If debt levels are too high, there could be difficulties in meeting obligations, especially during economic downturns or periods of rising interest rates if the debt has variable-rate payments.
Farmer Mac currently has $24.55 billion of debt and $1.21 billion of shareholder's equity on its balance sheet, and over the past four quarters, has averaged a debt-to-equity ratio of 19.8×. We think this is dangerous - for a financials business, anything above 3.5× raises red flags.
Final Judgment
Farmer Mac isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 7.9× forward P/E (or $148.64 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.
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