Shares of AFC Gamma (AFCG) have gained nearly 12% over the past month, and the stock is hovering close to its IPO levels of February 2021. AFCG is a high-yielding dividend stock with more growth potential ahead. Let’s find out more about what makes AFCG a compelling play as we head towards the final innings of 2022.
What Does AFC Gamma Do?
AFCG offers a potent combination of a real estate investment trust (REIT) with a focus on the cannabis sector. It originates, structures, and underwrites senior secured loans and other financing solutions to players in the cannabis market. It operates in U.S. states that have legalized either medicinal or adult-use cannabis.
The company currently has commitments of ~$483 million with an outstanding principal balance of ~$425 million. The present interest rate cycle has led to a supply-demand imbalance, and AFCG is doing well to target loans that have gross yields in the range of 12% to 20%.
Moreover, a first-mover advantage is poised to help AFCG grab a sizable chunk of the cannabis market pie. Canaccord Genuity estimates that the total U.S. legal cannabis market increased by 29% to $24 billion in 2021. Marijuana Business Daily expects U.S. retail cannabis sales to reach between $38.4 billion and $45.9 billion by 2025. AFCG stands to gain from these dynamics, with a $734 million active deal pipeline.
A Positive Regulatory Stance Should Aid the Stock
Additionally, as the regulatory stance becomes more and more favorable towards cannabis, the market size could continue to increase.
The SAFE Banking Act (funds from state-legal cannabis companies will not be seen as crime proceeds), The MORE Act (removes cannabis from the Controlled Substances Act), the CLIMB Act (enables a range of banking services to cannabis businesses), and the CAOA Act (ends federal cannabis prohibition and empowers states to make their own cannabis laws) are all steps towards regulatory acceptance of the industry.
Further, while 39 states and DC have legalized medical cannabis and 19 states have legalized adult-use cannabis, AFCG’s loan portfolio is diversified across 18 states, which also indicates the leg room AFCG has to increase its footprint.
Should You Buy or Sell AFC Gamma Stock Now?
Wall Street is positive about the stock, with a Strong Buy consensus rating and an average price target of $24.14, implying 34.56% upside potential. A TipRanks Smart Score of 8 out of 10, too, indicates the stock could deliver market-beating returns in the coming periods.
Also, JMP Securities’ Aaron Hecht has reiterated a Buy rating on the stock alongside a price target of $25, implying 39.35% upside potential.
AFCG Stock: Improving Fundamentals, High Dividend Yield
AFCG continues to deliver amid favorable market dynamics. Its top line has ballooned from $11.5 million in 2020 to $34.4 million in 2021. The figure is further expected to rise to $98 million in 2023. Its bottom line is expected to increase to $2.74 per share in 2023 from $1.52 per share in 2021. This financial outperformance has also meant a trailing-12-month dividend yield of 11.45% for shareholders of AFCG.
The company has now upped its dividend for four consecutive quarters, with a payout ratio of 87.62%.
Closing Note: AFC Gamma Looks Reasonably Priced
AFCG’s market capitalization stands at $356.2 million. A price-to-earnings multiple of 8.9x means the stock is reasonably priced, even after its price gains over the past month. Additionally, an enterprise-value-to-sales ratio of 5.78x, a price-to-sales ratio of 5.37x, and a high dividend yield give further legroom for share-price appreciation.
