Manhattan Bridge Capital Inc (NASDAQ:LOAN) is a USD$46.99M real estate investment trust (REIT). REITs are a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year, and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether LOAN is a laggard or leader relative to its real estate sector peers. View our latest analysis for Manhattan Bridge Capital
What’s the catalyst for LOAN’s sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. Over the past year, the industry saw negative growth of -1.44%, underperforming the US market growth of 4.49%. LOAN leads the pack with its impressive earnings growth of 5.10% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with LOAN poised to deliver a 16.44% growth over the next couple of years.
Is LOAN and the sector relatively cheap?
The REIT sector’s PE is currently hovering around 8x, below the broader US stock market PE of 22x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Furthermore, the industry returned a higher 12.76% compared to the market’s 9.99%, making it a potentially attractive sector. On the stock-level, LOAN is trading at a higher PE ratio of 15x, making it more expensive than the average REIT stock. In terms of returns, LOAN generated 14.72% in the past year, which is 1.96% over the REIT sector.
What this means for you:
Are you a shareholder? LOAN’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 LOAN’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto LOAN as part of your portfolio. However, if you’re relatively concentrated in REIT, the LOAN’s high PE may signal the right time to sell.
Are you a potential investor? If LOAN 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 REIT companies. However, that being said, its industry-beating growth prospects may be the reason for high relative valuation. I suggest you look at LOAN’s future cash flows in order to assess whether the stock is trading at a reasonable price on this basis.
For a deeper dive into Manhattan Bridge Capital’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.