The stock of SL Green Realty (NYSE:SLG, 30-year Financials) shows every sign of being modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $72.44 per share and the market cap of $5 billion, SL Green Realty stock shows every sign of being modestly undervalued. GF Value for SL Green Realty is shown in the chart below.
Because SL Green Realty is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. SL Green Realty has a cash-to-debt ratio of 0.05, which ranks in the middle range of the companies in REITs industry. Based on this, GuruFocus ranks SL Green Realty's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of SL Green Realty over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. SL Green Realty has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.1 billion and earnings of $5.023 a share. Its operating margin is 18.83%, which ranks worse than 78% of the companies in REITs industry. Overall, GuruFocus ranks the profitability of SL Green Realty at 6 out of 10, which indicates fair profitability. This is the revenue and net income of SL Green Realty over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of SL Green Realty is -2.3%, which ranks worse than 67% of the companies in REITs industry. The 3-year average EBITDA growth is 13.9%, which ranks better than 84% of the companies in REITs industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, SL Green Realty's ROIC is 1.61 while its WACC came in at 6.69. The historical ROIC vs WACC comparison of SL Green Realty is shown below:
In summary, The stock of SL Green Realty (NYSE:SLG, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 84% of the companies in REITs industry. To learn more about SL Green Realty stock, you can check out its 30-year Financials here.
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