American Campus Communities Inc (NYSE:ACC) is a US$5.12B 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. Below, I will examine the sector growth prospects, as well as evaluate whether American Campus Communities is lagging or leading in the industry. View our latest analysis for American Campus Communities
What’s the catalyst for American Campus Communities’s sector growth?
Concerns surrounding rate increases and treasury yield movements have made investors dubious around investing in REIT stocks. This is because REITs tend to be dependent on debt funding. They are also considered as bond investment alternatives due to their high and stable dividend payments. In the past year, the industry delivered growth of 5.04%, though still underperforming the wider US stock market. American Campus Communities lags the pack with its negative growth rate of -32.44% over the past year, which indicates the company will be growing at a slower pace than its REIT peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 44.03% in the upcoming year.
Is American Campus Communities and the sector relatively cheap?
REIT companies are typically trading at a PE of 19.63x, in-line with the US stock market PE of 18.87x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. However, the industry returned a lower 7.12% compared to the market’s 10.40%, potentially indicative of past headwinds. On the stock-level, American Campus Communities is trading at a higher PE ratio of 70.96x, making it more expensive than the average REIT stock. In terms of returns, American Campus Communities generated 1.93% in the past year, which is 5.19% below the REIT sector.
American Campus Communities’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 the company’s price, suggested by its higher PE ratio relative to its peers. If American Campus Communities 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, before you make a decision on the stock, I suggest you look at American Campus Communities’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has ACC’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of American Campus Communities? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
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.