Unitech Limited (NSEI:UNITECH), a INR₹24.60B small-cap, operates in the real estate industry which is the most prevalent industry globally, and has continued to play a crucial role in the portfolios of investors. Real estate analysts are forecasting for the entire industry, a strong double-digit growth of 11.43% in the upcoming year , and an optimistic near-term growth of 21.91% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Unitech is lagging or leading in the industry. Check out our latest analysis for Unitech
What’s the catalyst for Unitech’s sector growth?
Not every category of real estate is likely to be impacted the same by macroeconomic factors such as interest rate hikes, and not all locations are primed to grow. So, investors must remain cautiously optimistic and analyse the fundamentals of the underlying industry. Over the past year, the industry saw growth in the teens, beating the Indian market growth of 12.97%. Unitech 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 Unitech may be trading cheaper than its peers.
Is Unitech and the sector relatively cheap?
Real estate companies are typically trading at a PE of 30x, in-line with the Indian stock market PE of 29x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 4.60% compared to the market’s 9.78%, potentially indicative of past headwinds. Since Unitech’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Unitech’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Unitech recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Unitech as part of your portfolio. However, if you’re relatively concentrated in real estate, you may want to value Unitech based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Unitech has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the real estate industry. Before you make a decision on the stock, take a look at Unitech’s cash flows and assess whether the stock is trading at a fair price.
For a deeper dive into Unitech’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.
To help readers see pass 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.