What is AAIC's Intrinsic value?

Arlington Asset Investment Corp (AAIC) Intrinsic Value Analysis

Executive Summary

As of June 21, 2025, Arlington Asset Investment Corp's estimated intrinsic value ranges from $0.25 to $3.46 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $3.46 -28.5%
Dividend Discount Model (Stable) $0.25 -94.9%

Is Arlington Asset Investment Corp (AAIC) undervalued or overvalued?

With the current market price at $4.84, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Arlington Asset Investment Corp's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 4.2% 4.7%
Equity market risk premium 5.0% 6.0%
Adjusted beta 0.93 1.16
Cost of equity 8.8% 12.1%
Cost of debt 5.0% 5.0%
Tax rate 0.5% 8.6%
Debt/Equity ratio 5.62 5.62
After-tax WACC 5.6% 5.7%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 400.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.5%
  • Long-term growth rate: 3.5%
  • Fair value: $3.46 (-28.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 12.1% (Low) to 8.8% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $0 to $0
  • Selected fair value: $0.25 (-94.9% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $137M
Enterprise Value $770M
Trailing P/E 274.14
Forward P/E 25.13
Trailing EV/EBITDA 0.00
Current Dividend Yield 145.91%
Dividend Growth Rate (5Y) -52.26%
Debt-to-Equity Ratio 5.62

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 57% $0.69
Dividend Discount Model (Stable) 43% $0.04
Weighted Average 100% $2.08

Investment Conclusion

Based on our comprehensive valuation analysis, Arlington Asset Investment Corp's weighted average intrinsic value is $2.08, which is approximately 57.0% below the current market price of $4.84.

Key investment considerations:

  • Overall financial health and market position

Given these factors, we believe Arlington Asset Investment Corp is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.