The stock of Equity Lifestyle Properties (NYSE:ELS, 30-year Financials) is estimated to be fairly valued, 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 $65.06 per share and the market cap of $11.9 billion, Equity Lifestyle Properties stock shows every sign of being fairly valued. GF Value for Equity Lifestyle Properties is shown in the chart below.
Because Equity Lifestyle Properties is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 5.1% over the past five years.
Link: These companies may deliever higher future returns at reduced risk.
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. Equity Lifestyle Properties has a cash-to-debt ratio of 0.01, which ranks worse than 89% of the companies in REITs industry. Based on this, GuruFocus ranks Equity Lifestyle Properties's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of Equity Lifestyle Properties 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. Equity Lifestyle Properties has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1 billion and earnings of $1.18 a share. Its operating margin is 32.97%, which ranks worse than 67% of the companies in REITs industry. Overall, GuruFocus ranks the profitability of Equity Lifestyle Properties at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Equity Lifestyle Properties over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Equity Lifestyle Properties's 3-year average revenue growth rate is better than 73% of the companies in REITs industry. Equity Lifestyle Properties's 3-year average EBITDA growth rate is 3.8%, 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, Equity Lifestyle Properties's ROIC was 8.03, while its WACC came in at 4.55. The historical ROIC vs WACC comparison of Equity Lifestyle Properties is shown below:
Overall, the stock of Equity Lifestyle Properties (NYSE:ELS, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in REITs industry. To learn more about Equity Lifestyle Properties stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
