Nitesh Estates Limited (NSEI:NITESHEST), a INR₹3.07B small-cap, is a real estate company operating in an industry which displays attractive investment characteristics relative to other sectors, especially over time. Real estate analysts are forecasting for the entire industry, a positive double-digit growth of 10.59% in the upcoming year , and an optimistic near-term growth of 17.27% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Today, I’ll take you through the real estate sector outlook, and also determine whether Nitesh Estates is a laggard or leader relative to its real estate sector peers. See our latest analysis for Nitesh Estates
What’s the catalyst for Nitesh Estates’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 previous year, the industry saw growth in the teens, beating the Indian market growth of 12.93%. Nitesh Estates 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 Nitesh Estates may be trading cheaper than its peers.
Is Nitesh Estates and the sector relatively cheap?
The real estate sector’s PE is currently hovering around 28x, relatively similar to the rest of the Indian stock market PE of 29x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 4.59% compared to the market’s 9.82%, potentially indicative of past headwinds. Since Nitesh Estates’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Nitesh Estates’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Nitesh Estates has been a real estate industry laggard in the past year. If your initial investment thesis is around the growth prospects of Nitesh Estates, there are other real estate companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Nitesh Estates fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Nitesh Estates 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 real estate 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 Nitesh Estates’s future cash flows in order to assess whether the stock is trading at a reasonable price.