Is Now The Time To Bet On The Real Estate Sector And SL Green Realty Corp (SLG)?
SL Green Realty Corp (NYSE:SLG) is a USD$10.33B real estate investment trust (REIT), which is a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. 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. Today, I’ll take you through the real estate sector outlook, as well as evaluate whether SLG is lagging or leading in the industry. See our latest analysis for SLG
What’s the catalyst for SLG'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. In the past year, the industry delivered growth of 0.58%, though still underperforming the wider US stock market. SLG lags the pack with its negative growth rate of -76.82% over the past year, which indicates the company will be growing at a slower pace than its REIT peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with SLG poised to deliver a -34.03% growth compared to the industry average growth rate of -4.20%.
Is SLG and the sector relatively cheap?
The REIT sector's PE is currently hovering around 33x, above the broader US stock market PE of 22x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a similar 8.31% on equities compared to the market’s 9.99%. On the stock-level, SLG is trading at a higher PE ratio of 105x, making it more expensive than the average REIT stock. In terms of returns, SLG generated 1.37% in the past year, which is 7% below the REIT sector.
What this means for you:
Are you a shareholder? SLG is REIT industry laggard in terms of its future growth outlook. In addition to this, the stock is trading at a PE above its peers, meaning it is more expensive on a relative earnings basis. This may indicate it is the right time to sell out of the stock, if your initial investment thesis is around the growth prospects of SLG, since there are other REIT companies with higher growth prospects, possibly trading at a cheaper price as well.
Are you a potential investor? If SLG has been on your watchlist for a while, now may not be the best time to enter into the stock. Its growth is expected to be lower than its REIT peers in the near term, and it is also trading at a PE above these companies. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector.
For a deeper dive into SL Green Realty'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.
