Safestore Holdings plc (LSE:SAFE) is a GBP£925.23M real estate investment trust (REIT), which is 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 UK stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether SAFE is lagging or leading in the industry. See our latest analysis for SAFE
What’s the catalyst for SAFE’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 previous year, the industry endured negative growth of -22.87%, underperforming the UK market growth of 1.54%. SAFE leads the pack with its impressive earnings growth of 5.70% over the past year. However, analysts are expecting its future earnings growth to be more in-line with the industry average, hovering at -33.28% over the next couple of years.
Is SAFE and the sector relatively cheap?
The REIT industry is trading at a PE ratio of 14x, in-line with the UK stock market PE of 18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 7.31% compared to the market’s 12.78%, potentially indicative of past headwinds. On the stock-level, SAFE is trading at a lower PE ratio of 9x, making it cheaper than the average REIT stock. In terms of returns, SAFE generated 17.42% in the past year, which is 10.10% over the REIT sector.
What this means for you:
Are you a shareholder? SAFE’s future growth prospect aligns with that of the broader market and its PE is below its real estate peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market hasn’t fully accounted for the growth, meaning now may be the right time to accumulate more of SAFE, if you’re not already highly concentrated in the company.
Are you a potential investor? If SAFE has been on your watchlist for a while, now may be the best time to enter into the stock. Its industry-aligned growth prospects may have not been fully priced into its shares given its lower PE ratio relative to its peers. Before you make the decision to buy, I recommend you look at other fundamentals factors and see whether there is a reason why the stock may be trading at a discount in the real estate sector.
For a deeper dive into Safestore Holdings’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.