$6.40
$12.00
bear $6.40
base $9.80
bull $12.00
margin of safety $4.50
market price* $24.51
Angel Oak Mortgage REIT is an externally managed real estate finance company. It buys newly originated non-qualified (non-QM) first and second lien residential mortgage loans in the United States, funds them with repurchase borrowing and securitizations, and also holds agency mortgage securities and Treasuries. Shareholders earn the spread between loan interest and funding cost, less management fees. Common equity averaged about $254 million in 2025, roughly $10.4 per share on about 24.3 million diluted shares. How we measured earnings. Reported operating cash flow is not usable for this company: it was negative $407 million in 2025 and negative $221 million in 2024, even though net income was positive, because purchases of mortgage loans run through the operating section. We instead built earnings per share from net income, adding back non-cash items such as unrealized fair-value marks and discount and premium amortization, and treating stock compensation as a real cost. We did not add back realized losses, since those are real. This gives roughly $1.18 (2021), $0.99 (2022), negative $0.99 (2023), $0.51 (2024) and $0.92 (2025) per share. The 2022 and 2023 figures are one event: large unrealized losses in 2022 were realized in 2023. Averaged together they are about zero, so we treat the pair as one observation. The middle of the resulting four observations is about $0.72; we use $0.70 per share as the normal level. The company's own distributable earnings were lower at about $0.60 per share in 2025 and $0.29 in 2024, because it does not add back the same accretion items. Growth. Owner earnings rose from $0.51 to $0.92 in 2025. We assume no growth in any case. Portfolio growth here depends on raising new equity and on spreads staying wide, and the business has not shown a steady, self-funded compounding record; per-share earnings have not risen over the five years. Base case, $9.80 per share. Earnings hold at $0.70 per share for ten years, worth about $5.15 today. After that, the evidenced asset is the equity in the loan book, about $10.4 per share; we assume 80 percent of it is ultimately recoverable, worth about $4.60 today, for a total near $9.80. Bear case, $6.40 per share. The record includes a 2022 net loss of $188 million when loan values fell. Bear assumes earnings of about $0.40 per share for ten years, worth about $2.90 today, and a repeat of that kind of loss that leaves about 60 percent of today's equity recoverable at the end, worth about $3.50 today. The loan book is financed with borrowing, secured by the loans, which magnifies any price decline. The manager is paid a fee on equity and an incentive on distributable earnings, which slightly favors the manager over shareholders. Bull case, $12.00 per share. Earnings return to the $0.92 achieved in 2025 and hold for ten years, worth about $6.80 today, and 90 percent of equity is recoverable at the end, worth about $5.20 today. We did not credit market-wide moves in rates, new loan products, or growth in the loan book, as none is contracted or shown to be repeatable. What would make this wrong. First-half 2026 shows a net loss of about $4 million, although the second quarter alone was a $3.4 million profit. That is not enough to move our normal level, but several more weak quarters would. If credit losses on non-QM loans rise or funding costs jump, the bear case becomes more likely. We could not reconcile the company's distributable-earnings measure exactly to ours; the gap is mostly accretion and amortization items that we treat as non-cash. Margin-of-safety price. Given leverage, mark-to-market exposure and outside management, the margin-of-safety price is set well below the bear case at $4.50 per share, which leaves room for a repeat of 2022; from that price the base case implies a 20 percent annual return.