Are You Buying What Cypress Is Selling?

Shares of Cypress Sharpridge (NYSE: CYS) fell nearly 7% in the day following its announcement of an additional stock offering a couple of weeks ago.

Apparently, existing shareholders weren't thrilled with the news. However, new investors may have reason to smile.

Cypress Sharpridge has certainly been willing to sell. In fact, it's more than doubled its share count in roughly three months.

Offerings are fairly common in the world of mortgage real estate investment trusts (REITs), and they're not necessarily considered a bad thing. Companies can be tempted to sell shares when their equity prices rise above net asset value. The new cash can be quickly rolled into new asset purchases, increasing book value per share. Think of it as a company selling dollar bills for $1.05.

But Cypress' deals have been anything but typical. The company's float growth is positively audacious, and its large offerings have netted less than per-share book value. In the second-quarter conference call, which followed the first sale, management justified the transaction as a way to take advantage of the market environment, reduce its expense ratio, and to improve the liquidity of its stock.

That's quite the same as selling dollar bills at a premium, but it apparently worked so well that the company did it twice.

Subsequently, despite strong institutional demand for both offerings, CYS's share price has yet to fully rebound.

But why should you consider buying?
With its shares in the low $13 range, Cypress is cheaper than peers, at least relatively speaking.

Annaly Capital Management (NYSE: NLY), the largest and best-known of the group, trades well above per-share book value. And even with its own recent offering, American Capital Agency (Nasdaq: AGNC) still trades at a premium.

Although the companies differ in terms of particular assets, hedging, and leverage, all make their money from the spread between the costs of their short-term funding and the interest on bonds. Their net asset values vary as markets fluctuate, but comparing book value numbers from the most recent data available give some indication of the relative premiums -- and Cypress is cheaper.

Although the company's recent tendency toward dilutive offerings is a bit unnerving, it certainly appears to benefit new investors.

The Fool owns shares of Annaly Capital Management. Try any of our Foolish newsletter services free for 30 days.