The stock of Mid-America Apartment Communities (NYSE:MAA, 30-year Financials) appears to be modestly overvalued, 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 $144.36 per share and the market cap of $16.5 billion, Mid-America Apartment Communities stock gives every indication of being modestly overvalued. GF Value for Mid-America Apartment Communities is shown in the chart below.
Because Mid-America Apartment Communities is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 1.7% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Mid-America Apartment Communities has a cash-to-debt ratio of 0.01, which is worse than 89% of the companies in REITs industry. The overall financial strength of Mid-America Apartment Communities is 4 out of 10, which indicates that the financial strength of Mid-America Apartment Communities is poor. This is the debt and cash of Mid-America Apartment Communities over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Mid-America Apartment Communities has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.7 billion and earnings of $2.2 a share. Its operating margin is 25.48%, which ranks worse than 73% of the companies in REITs industry. Overall, the profitability of Mid-America Apartment Communities is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Mid-America Apartment Communities over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Mid-America Apartment Communities is 1.7%, which ranks in the middle range of the companies in REITs industry. The 3-year average EBITDA growth rate is -2.9%, which ranks in the middle range of the companies in REITs industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Mid-America Apartment Communities's ROIC was 3.77, while its WACC came in at 5.12. The historical ROIC vs WACC comparison of Mid-America Apartment Communities is shown below:
To conclude, The stock of Mid-America Apartment Communities (NYSE:MAA, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in REITs industry. To learn more about Mid-America Apartment Communities stock, you can check out its 30-year Financials here.
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