HMG/Courtland Properties Inc (AMEX:HMG) is a USD$14.48M real estate investment trust (REIT), which is a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year . Today, I will analyse the industry outlook, and also determine whether HMG/Courtland Properties is a laggard or leader relative to its real estate sector peers. Check out our latest analysis for HMG/Courtland Properties
What’s the catalyst for HMG/Courtland Properties’s sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. Over the past year, the industry saw negative growth of -4.68%, underperforming the US market growth of 10.79%. HMG/Courtland Properties lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means HMG/Courtland Properties may be trading cheaper than its peers.
Is HMG/Courtland Properties and the sector relatively cheap?
REIT companies are typically trading at a PE of 30x, higher than the rest of the US stock market PE of 20x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 7.96% compared to the market’s 10.46%, which may be indicative of past headwinds. Since HMG/Courtland Properties’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge HMG/Courtland Properties’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? HMG/Courtland Properties has been a REIT industry laggard in the past year. If your initial investment thesis is around the growth prospects of HMG/Courtland Properties, there are other REIT companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how HMG/Courtland Properties fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If HMG/Courtland Properties has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its REIT peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at HMG/Courtland Properties’s future cash flows in order to assess whether the stock is trading at a reasonable price.