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Franklin BSP Realty Trust Faces Steep Decline

In the past half-year, Franklin BSP Realty Trust has seen its stock price tumble to $9.40, resulting in a substantial 19.1% loss for shareholders. This stands in sharp contrast to the S&P 500, which gained 4.8% over the same period. The drop has been fueled in part by weaker-than-expected quarterly performance, leaving many investors uncertain about their next move.

Should you consider buying Franklin BSP Realty Trust at these levels, or does the stock pose too much risk for your portfolio?

Reasons We’re Steering Clear of Franklin BSP Realty Trust

Although the stock appears more affordable now, we’re choosing to avoid Franklin BSP Realty Trust for the time being. Here are three key factors behind our decision, as well as an alternative stock we prefer.

1. Weak Net Interest Income Signals Tepid Demand

Net interest income is a crucial metric for banks, valued for its stability and predictability compared to more volatile revenue streams like one-off fees. However, Franklin BSP Realty Trust’s net interest income has only grown at an annualized rate of 6.1% over the past five years—lagging behind both the broader banking sector and the company’s own total revenue growth.

Franklin BSP Realty Trust Trailing 12-Month Net Interest Income

2. Earnings Per Share on a Downward Trajectory

Long-term trends in earnings per share (EPS) reveal whether a company is generating real profit from its sales growth. EPS at Franklin BSP Realty Trust has dropped sharply over the last three years. We generally advise caution with companies experiencing both declining revenue and falling EPS, as these trends may indicate deeper shifts in the business or industry. With a shrinking margin of safety, the stock could be vulnerable to further significant declines if conditions worsen.

Franklin BSP Realty Trust Trailing 12-Month EPS (Non-GAAP)

3. Falling Tangible Book Value Per Share Undermines Asset Strength

Tangible book value per share (TBVPS) is a key measure of a bank’s underlying financial health, reflecting the value of real assets available to shareholders after stripping out intangibles. Unfortunately for investors, Franklin BSP Realty Trust’s TBVPS has dropped at an annual rate of -11.3% over the past two years, falling from $15.20 to $11.96 per share.

Franklin BSP Realty Trust Quarterly Tangible Book Value per Share

Our Verdict

While we appreciate companies that contribute to economic growth, Franklin BSP Realty Trust does not currently meet our investment criteria. The stock is now trading at just 0.7 times its forward price-to-book ratio (or $9.40 per share), which might seem attractive at first glance. However, given the company’s weak fundamentals, the risk of further losses is significant. We believe there are stronger opportunities elsewhere. For example, consider one of our top-rated software stocks as a better alternative.

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