Extra Space Storage (EXR): A Hidden Gem in the REITs Industry?
Extra Space Storage Inc (NYSE:EXR) has been making waves in the market with a daily gain of 1.47% and an Earnings Per Share (EPS) of 6.13. However, the stock has experienced a 3-month loss of -11.14%. This prompts the question: Is the stock significantly undervalued? In this article, we will delve into a detailed valuation analysis of Extra Space Storage (NYSE:EXR) to answer this question. So, let's get started!
Company Overview
Extra Space Storage Inc (NYSE:EXR) is a fully integrated real estate investment trust that owns, operates, and manages almost 2,400 self-storage properties across 41 states. With over 180 million net rentable square feet of storage space, the company has a strong presence in the industry. The company's market cap stands at $27.10 billion, with sales reaching $2 billion. Despite its current stock price of $128.06, the GF Value estimates its fair value at $191.47, suggesting that the stock might be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary valuation method that estimates a stock's intrinsic value. It takes into account historical trading multiples, an internal adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides a snapshot of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on this analysis, Extra Space Storage (NYSE:EXR) appears to be significantly undervalued. The stock's current price is significantly below the GF Value Line, suggesting a high potential for future returns. This is further supported by the company's strong business growth and positive future performance estimates.
Because Extra Space Storage is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength Analysis
Assessing the financial strength of a company is crucial before investing in its stock. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are good indicators of a company's financial strength. Extra Space Storage has a cash-to-debt ratio of 0.01, which is lower than 86.77% of 718 companies in the REITs industry. This indicates that the financial strength of Extra Space Storage is relatively poor.
Profitability and Growth
Investing in profitable companies carries less risk, especially if they have demonstrated consistent profitability over the long term. Extra Space Storage has been profitable for 10 years over the past 10 years. Its operating margin of 53.29% is better than 52.93% of 665 companies in the REITs industry. Overall, GuruFocus ranks Extra Space Storage's profitability as strong.
Growth is a crucial factor in the valuation of a company. Extra Space Storage's 3-year average revenue growth rate is better than 87.38% of 634 companies in the REITs industry. Its 3-year average EBITDA growth rate is 16.9%, which ranks better than 78.73% of 536 companies in the REITs industry. This indicates that the company's growth is relatively strong.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Extra Space Storage's ROIC was 8.88, while its WACC came in at 8.01.
Conclusion
In conclusion, the stock of Extra Space Storage (NYSE:EXR) appears to be significantly undervalued. The company's financial condition is poor, but its profitability and growth are strong. To learn more about Extra Space Storage stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
