UWM Holdings has seen its share price come under heavy pressure over the past year, which puts a sharp spotlight on what investors are really paying for in terms of the returns it earns on its capital. With the stock now trading near the lower end of its recent range, the key issue is whether that price lines up with the profitability the business can generate on the money it invests.

• Over the last 12 months, UWM Holdings has fallen 79.2%. That raises the question of how the market is weighing the returns the business can produce on each dollar of capital it employs.

• The company's disclosure of a US$603.2m loss tied to over hedging mortgage servicing rights and the related securities class actions may affect how much capital it has available and how confidently investors view its risk controls when judging those future returns.

• Prefer to judge UWM Holdings on sales? See why UWM Holdings's 0.1x P/S tells a different valuation story .

The issue now is whether the current share price is appropriately reflecting the returns UWM Holdings earns on the capital it puts to work in the business.

If you want to stress test this same question about what you pay for the returns a business earns on its capital across a wider field, take a look at 30 high quality undervalued stocks .

Is UWM Holdings Getting Expensive on Excess Returns?

The Excess Returns model starts by asking whether UWM Holdings earns more on its equity than it costs shareholders to fund that capital. In this framework, book value sits at about $0.39 per share, while the stable book value used in the model is higher at $1.26 per share, based on estimates from four analysts. The approach links that balance sheet base to an estimated stable EPS of $0.09 per share, which flows from the median return on equity over the past five years.

Here is the friction point. The average return on equity sits near 6.82%, while the cost of equity in the model is also around $0.09 per share. That leaves a slightly negative excess return estimate of $0.01 per share, so the framework assumes the business does not currently earn more than its equity cost. A separate dividend model points to a very high payout ratio and negative implied growth, which helps explain why the Excess Returns projections put UWM Holdings' estimated intrinsic value modestly below the current share price of $1.22. The large hedging loss and related securities class actions make that shortfall easier to understand because they call the durability of future returns into question. Find out what UWM Holdings could be worth using our Excess Returns estimate .