Is Extra Space Storage Inc (EXR) Modestly Undervalued?
Extra Space Storage Inc (NYSE:EXR) saw a daily gain of 3.05%, despite a 3-month loss of -14.99%. With an Earnings Per Share (EPS) of 6.13, the question arises: is the stock modestly undervalued? This article provides a detailed valuation analysis of Extra Space Storage (NYSE:EXR), encouraging readers to delve into the financial health and intrinsic value of the company.
Company Overview
Extra Space Storage is a fully integrated real estate investment trust that owns, operates, and manages nearly 2,300 self-storage properties across 41 states. With over 170 million net rentable square feet of storage space, the company stands at a market cap of $27.40 billion. The stock price of Extra Space Storage (NYSE:EXR) is currently at $129.53, while its GF Value, an estimation of fair value, stands at $183.38. This discrepancy paves the way for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a snapshot of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued, leading to poor future returns. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Extra Space Storage (NYSE:EXR), with its current price of $129.53 per share and a market cap of $27.40 billion, is believed to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Assessing Financial Strength
Before investing in a company, it's essential to check its financial strength. Investing in companies with poor financial strength carries a higher risk of permanent loss. A great way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Extra Space Storage has a cash-to-debt ratio of 0.01, which is worse than 86.37% of companies in the REITs industry. The overall financial strength of Extra Space Storage is 4 out of 10, indicating that the financial strength of Extra Space Storage is poor.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Extra Space Storage has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2 billion and Earnings Per Share (EPS) of $6.13. Its operating margin is 53.29%, which ranks better than 53.38% of companies in the REITs industry. Overall, the profitability of Extra Space Storage is ranked 9 out of 10, indicating strong profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Extra Space Storage's 3-year average revenue growth rate is better than 87.66% of companies in the REITs industry. Extra Space Storage's 3-year average EBITDA growth rate is 16.9%, which ranks better than 76.78% of companies in the REITs industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Extra Space Storage's return on invested capital is 8.79, and its cost of capital is 7.65.
Conclusion
In summary, the stock of Extra Space Storage (NYSE:EXR) is believed to be modestly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks better than 76.78% of companies in the REITs industry. 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.
