Stratus Properties Inc (NASDAQ:STRS), a US$242.79M small-cap, operates in the real estate industry which is the most prevalent industry globally, and has continued to play a crucial role in the portfolios of investors. 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 Stratus Properties is lagging or leading in the industry. See our latest analysis for Stratus Properties
What’s the catalyst for Stratus Properties’s sector growth?
Over the past couple of years, as yields for high quality real estate investments have become under pressure, investors have swung towards more niche and diversified buildings such as medical offices, student housing and data storage facilities. Over the past year, the industry saw growth in the twenties, beating the US market growth of 9.86%. Given the lack of analyst consensus in Stratus Properties’s outlook, we could potentially assume the stock’s growth rate broadly follows its real estate industry peers. This means it is an attractive growth stock relative to the wider US stock market.
Is Stratus Properties and the sector relatively cheap?
Real estate companies are typically trading at a PE of 11.3x, below the broader US stock market PE of 18.83x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Though, the industry returned a similar 9.10% on equities compared to the market’s 10.50%. On the stock-level, Stratus Properties is trading at a higher PE ratio of 22.87x, making it more expensive than the average real estate stock. In terms of returns, Stratus Properties generated 7.98% in the past year, which is 1.12% below the real estate sector.
If you’ve been keeping an eye on the real estate sector, now may be the right time to dive deeper into the stock-level. Although it is expected to deliver lower growth on an industry level relative to the rest of the market, it is also trading at a PE below the average stock. In the case that the market is overly pessimistic on the real estate sector, there could be a mispricing opportunity to take advantage of. However, before you make a decision on the stock, I suggest you look at Stratus Properties’s fundamentals in order to build a holistic investment thesis.
- 1. 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.
- 2. Historical Track Record: What has STRS’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.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Stratus Properties? 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.