With a daily gain of 4.9% and an impressive 3-month gain of 70.16%, SL Green Realty Corp (NYSE:SLG) has been making waves in the stock market. Despite reporting a Loss Per Share of 7.16, the question on many investors' minds is: Is the stock modestly undervalued? In this article, we aim to answer this question by conducting a thorough valuation analysis of SL Green Realty. So, let's delve into the details.
SL Green Realty Corp (NYSE:SLG) is one of the largest property owners and landlords in Manhattan, with interests in approximately 35 million square feet of wholly owned and joint-venture office space. The company also has a limited portfolio of strategically located retail space. As a real estate investment trust, SL Green Realty has a market cap of $2.80 billion and reported sales of $882 million. The stock price currently stands at $42.95, which we will compare with the GF Value, an estimation of its fair value.
Summarizing 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 represents the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $42.95 per share and a market cap of $2.80 billion, SL Green Realty (NYSE:SLG) 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.
Assessing Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. SL Green Realty has a cash-to-debt ratio of 0.04, ranking worse than 62.19% of 722 companies in the REITs industry. The overall financial strength of SL Green Realty is 3 out of 10, indicating poor financial strength.
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. SL Green Realty has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $882 million and a Loss Per Share of $7.16. Its operating margin is 16.49%, ranking worse than 85.2% of 669 companies in the REITs industry. Overall, the profitability of SL Green Realty is ranked 6 out of 10, indicating fair profitability.
Growth is one of the most important factors in the valuation of a company. 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. However, SL Green Realty's 3-year average revenue growth rate is worse than 79.02% of 634 companies in the REITs industry. SL Green Realty's 3-year average EBITDA growth rate is -27.6%, ranking worse than 89.37% of 536 companies in the REITs industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, SL Green Realty's ROIC was 1.26 while its WACC came in at 5.46.
In conclusion, the stock of SL Green Realty (NYSE:SLG) is believed to be modestly undervalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 89.37% of 536 companies in the REITs industry. To learn more about SL Green Realty stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.