Gateway Lifestyle Group (ASX:GTY), a AUD$586.02M small-cap, operates in the real estate industry which remains the single largest sector globally, and has continued to play a key role in investor portfolios as an asset class. Real estate investments typically display unique and attractive investment characteristics relative to other stocks and bonds, especially over a long time horizon. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year, and a low 7 percent growth over the next couple of years. This rate is below the growth rate of the Australian stock market as a whole. Is the real estate industry an attractive sector-play right now? Below, I will examine the sector growth prospects, as well as evaluate whether GTY is lagging or leading its competitors in the industry. See our latest analysis for GTY
What’s the catalyst for GTY's sector growth?
Over the past couple of years, as yields for high quality real estate investments have become under pressure, investors have swung towards more niche and diversified buildings such as medical offices, student housing and data storage facilities. In the past year, the industry delivered growth in the teens, beating the Australian market growth of 6 percent. GTY leads the pack with its impressive earnings growth of 36 percent over the past year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -21 percent compared to the wider real estate sector growth hovering next year. As a future industry laggard in growth, GTY may be a cheaper stock relative to its peers.
Is GTY and the sector relatively cheap?
The real estate sector's PE is currently hovering around 12 times, below the broader Australian stock market PE of 22 times. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry did returned a lower 13 percent compared to the market’s 16 percent, which may explain the lower relative valuation. On the stock-level, GTY is trading at a PE ratio of 10 times, which is relatively in-line with the average real estate stock. In terms of returns, GTY generated 10 percent in the past year, which is 3 percent below the real estate sector.
What this means for you:
Are you a shareholder? GTY is a real estate industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If your initial investment thesis is around the growth prospects of GTY, there are other real estate companies that are expected to deliver higher growth in the future, and perhaps trading at a discount to the industry average. Consider how GTY fits into your wider portfolio and the opportunity cost of holding onto the stock.