Redwood Trust, Inc. (RWT): fair value, margin of safety and Wheel Score

Is RWT undervalued?

At 2.95 (close of 16 Oct 2026), RWT trades within a few percent of the GLS average fair value of 2.77 (6.4% above fair value). 6 models produced a value and they split 1 above the price to 5 below. A stock priced at fair value earns about half of the Wheel Score's Value points; the rest of the score comes from health, moat, premium and stability.

There is a wide gap between Lynch (0.2566) and DDM (10.59). When the models are this far apart the "fair value" is really a range, and the margin of safety above should be read with that range in mind.

The nightly engine files RWT under High Yield Income: a dividend yield above 4%.

Nine valuation models for RWT

Each model turns the latest filed numbers into a value per share; the GLS fair value is the simple average of the ones that produce a positive number. The last two rows are shown for reference and never enter the average. The Quote page lets you switch any model off and add your own margin of safety.

Quality and financial health

Redwood Trust, Inc. scores 5 of 9 on the Piotroski F-score: a middling result that falls one point short of the Sunday Scan's "6 or more" rule. Some of the nine tests on profitability, leverage and efficiency are failed, so the accounts are worth a look before selling a put on the name. A GLS Moat score of 2.7/10 is a weak reading: the ten-year history the score grades (revenue, EPS, book value, margins, cash flow, share count, ROIC) has not been steady, so the Moat part of the Wheel Score contributes little.

Returns on capital are thin or negative - ROIC -0.3%, ROE -7.1%, ROA -0.3% - with debt at 22.56 times equity and negative free cash flow. Debt of 22.56 times equity is on the high side for the sector and is worth checking against the cash flow before treating the stock as a long-term hold.

The dividend yield is high at 24.41% (payout ratio 1804%) - a payout above 100% of earnings, which is not covered by profits. A yield this size is often the market's way of pricing a risk to the payout, so the health score and cash flow matter more than usual.

Institutional ownership scores 9/10, insider activity 10/10 and Congressional trading 5/10 on the GLS smart-money scales.

Wheel Score 58: Fair

A Wheel Score of 58 puts Redwood Trust, Inc. in the Fair band - below the 70 the Sunday Scan requires. Value 10/25, Health 11/20, Moat 4/15, Premium 20/20 and Stability 13/20; the weakest part is Moat (4/15).

Implied volatility is 59% on the near-the-money contracts 20-60 days out - inside the 35-60% range the Wheel Score pays full marks for: enough premium to be worth selling, not so much that the risk is unpaid. Chain open interest is 13,556 contracts across all expiries - enough for the wheel at normal size.

Volume runs at 3.2M shares a day on a market cap of $371M, with a beta of 1.51 - a high beta, so the stock tends to move more than the market and a strike can be gapped through; the Stability part of the Wheel Score gives that 13 of 20.

The Wheel Score ranks ~7,400 US stocks for selling cash-secured puts and covered calls; it is updated nightly and is not a recommendation. The walkthrough lesson shows how the score fits into a trade, start to finish.

Upcoming events

The next earnings report is due on 3 Nov 2026 (after the close), 18 days away; a 30-45-day put sold today would expire after it, which is worth weighing against the premium.

Earnings, dividend, IPO, split and economic calendars for the whole market, filterable to your watchlists.

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