OUE Limited (SGX:LJ3), a S$1.3b 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. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and a robust short-term growth of 15% over the next couple of years. However, this rate came in below the growth rate of the Singapore stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether OUE is a laggard or leader relative to its real estate sector peers.

Check out our latest analysis for OUE

What’s the catalyst for OUE’s sector growth?

Not every category of real estate is likely to be impacted the same by macroeconomic factors. Investors should remain cautiously optimistic of the underlying industry. In the previous year, the industry saw growth in the thirties, beating the Singapore market growth of 11%. OUE lags the pack with its negative growth rate of -32% over the past year, which indicates the company has been growing at a slower pace than its real estate peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 4.2% in the upcoming year. This future growth may make OUE a more expensive stock relative to its peers.

Is OUE and the sector relatively cheap?

Real estate companies are typically trading at a PE of 9.64x, in-line with the Singapore stock market PE of 11.71x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 6.4% on equities compared to the market’s 7.7%. On the stock-level, OUE is trading at a higher PE ratio of 15.43x, making it more expensive than the average real estate stock. In terms of returns, OUE generated 3.0% in the past year, which is 3.4% below the real estate sector.

Next Steps:

OUE’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If OUE has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other real estate companies. However, before you make a decision on the stock, I suggest you look at OUE’s fundamentals in order to build a holistic investment thesis.

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

2. Historical Track Record: What has LJ3’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of OUE? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.