Granite Point (GPMT) — Discount-to-Book Looks Exhausted; Time a Rerate Trade

Hook & thesis

Granite Point Mortgage Trust (GPMT) is trading at roughly $2.13, a fraction of reported book value (price-to-book ~0.17). That gap has been the primary driver of the stock’s poor performance over the last year, but there are signs the discount has largely run its course: RSI sits in the mid-30s, average daily liquidity is adequate to support a trade, and short interest has fallen to low days-to-cover levels. In plain terms: the market is already pricing a bleak outcome. If the REIT avoids further credit impairment and funding conditions stabilize, GPMT can re-rate materially even without a dramatic improvement in operations.

My trade idea: take a tactical long with a clear entry at $2.13, stop at $1.60 (the 52-week low), and target $3.75. That target implies a conservative re-rating to roughly 0.30x book – achievable if investors regain confidence in the dividend and discount narrows modestly. This is a measured, high-conviction setup with defined downside and multiple plausible catalysts for a rerate.

Business snapshot - why the market should care

Granite Point is a small, specialized mortgage REIT that originates and manages senior floating-rate commercial mortgage loans and other CRE debt instruments. The business model benefits when short-term rates move and spreads on floating-rate senior loans widen or stabilize. For an investor, the attraction is twofold: (1) a high running yield if distributions are sustained, and (2) capital upside from narrowing valuation spreads versus book value. Market participants care because GPMT’s capital structure carries leverage: enterprise value is reported at roughly $1.23B against a market cap near $101M, meaning changes in credit spread perception or funding costs can rapidly swing book value and sentiment.

Key fundamentals and what they say

Two points jump out. First, the market cap is tiny relative to the balance sheet-scale enterprise value - indicative of high leverage and/or heavily discounted assets. Second, price-to-book at ~0.17 is extreme; investors pricing the stock this low are effectively assuming severe and lasting asset impairment or a forced liquidation at large losses.

Why the discount may have bottomed

• Technicals: the 10/20/50 EMAs are above the current price but momentum indicators like RSI (around 37) show the stock in or near oversold territory, which can compress further downside absent new negative news.
• Short interest and coverage: recent data point to low days-to-cover (~1 day), which reduces the risk of a continued cascade of forced selling from short squeezes but also indicates fewer persistent new shorts piling in.
• Market signals: analysts and outlets have started to voice cautious optimism (an upgrade and notes on potential trend reversals appeared earlier), which can trigger incremental demand for deeply discounted REITs if the dividend looks sustainable.

Valuation framing

Using the reported price-to-book of ~0.17 and current share count implies a book value per share materially higher than the market price. A re-rating to a conservative 0.30x PB would put the stock into the mid-$3s. That’s the logic behind the $3.75 target: it doesn’t require a return to peak valuation, just a partial normalization that many distressed/high-yield REITs experience once dividend support and asset performance stabilize.

Important context: leverage amplifies outcomes. Small changes in spreads, loan prepayments, or credit marks can materially change NAV. With an enterprise value around $1.23B and a market cap near $101M, equity is highly sensitive to portfolio mark movements. That makes both the upside and the downside steeper than in a less-levered REIT.

Catalysts (2-5)

• Dividend stability or reinstatement announcements - any sign management can sustain or defend distributions will quickly narrow the discount.
• Quarterly results showing limited new impairment and stable loan performance - marks closer to prior book values would be a direct rerate catalyst.
• Funding market improvement or lower borrowing costs - since funding dynamics drive mortgage REIT valuations, reduced spreads could materially lift NAV expectations.
• Analyst upgrades and constructive press flow - we already saw a notable upgrade on 05/28/2024; additional positive research can attract yield-focused investors back into the name.

Trade plan (actionable)

Entry: $2.13
Stop loss: $1.60 (hard stop) — this sits roughly at the 52-week low and is a sensible liquidation threshold if the market decides to re-price the name lower.
Target: $3.75 (primary) — assumes a partial rerate to ~0.30x book.
Position size: size this trade so the distance from entry to stop represents a tolerable percent of portfolio risk (given the volatility and leverage, keep single-position exposure small relative to total capital).
Horizon: mid term (45 trading days) with a plan to reevaluate on fundamental read-throughs (quarterly results, financing updates). If a rerate takes longer because of gradual NAV recovery, treat as a position trade and revisit sizing.

Rationale on horizon: I expect initial rerating pressure to appear within a mid-term window (45 trading days) if catalysts line up (dividend clarity, funding signals). If catalysts lag, the trade can be extended into a position-term horizon, but the stop remains critical to limit downside.

Key points

• GPMT trades at a steep discount to book; even a partial rerating implies significant upside relative to current price.
• Leverage creates sensitivity: small positive marks or funding improvements translate to outsized equity moves.
• Technicals show oversold conditions and reduced short pressure, making an orderly rerate more likely if fundamentals stabilize.

Risks and counterarguments

• Credit deterioration: further impairments or unexpected losses on the loan book would directly cut book value and justify the low valuation.
• Funding shock: tightening in credit markets or higher borrowing costs could widen spreads and pressure NAV; with enterprise value far above market cap, equity holders would bear disproportionate pain.
• Dividend cut or suspension: if management reduces or suspends distributions, yield-oriented buyers may exit, pushing the stock lower.
• Market sentiment remains weak for mREITs: even without fresh bad news, a slow risk-on environment could keep valuations depressed for months.
• Liquidity and execution risk: average daily volume is modest; exits or additions at scale can move the price materially.

Counterargument: the market may be right to price GPMT at a deep discount due to structural funding risks and recurring negative EPS (reported -$1.49). If spreads widen modestly or several loans require marks, book value could decline rapidly, validating the low multiple. This trade therefore rests on an explicit assumption that the loan portfolio avoids further major impairments and funding improves or stabilizes.

Conclusion & what would change my mind

I am constructive on a tactical long in GPMT at $2.13 with a $3.75 target and $1.60 stop because the current price embeds an extreme scenario. The return profile is asymmetric: the stock needs only a modest rerate to deliver meaningful percentage gains, while a disciplined stop limits capital at risk if the market proves prescient.

I would change my view if any of the following occur: (1) management announces sizable new loan impairments or a material dividend cut, (2) funding costs spike and management signals balance sheet stress, or (3) book value per share is visibly and continuously revised down over successive quarters. Conversely, proof points that would strengthen the bull case include preserved or increased distributions, improved funding spreads, and quarter-over-quarter stabilization in portfolio marks.

Bottom line: This is a high-risk, potentially high-reward trade for investors willing to tolerate earnings volatility and balance-sheet sensitivity. Use a small, disciplined position size, respect the stop, and watch the upcoming filings and funding commentary closely.

Trade plan summary: Enter $2.13, Stop $1.60, Target $3.75. Mid-term horizon: 45 trading days; reevaluate on results and financing updates.