The stock of Monmouth Real Estate Investment (NYSE:MNR, 30-year Financials) is believed 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 $17.98 per share and the market cap of $1.8 billion, Monmouth Real Estate Investment stock appears to be modestly overvalued. GF Value for Monmouth Real Estate Investment is shown in the chart below.
Because Monmouth Real Estate Investment is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 2% over the past five years.
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. Monmouth Real Estate Investment has a cash-to-debt ratio of 0.16, which is better than 73% of the companies in REITs industry. The overall financial strength of Monmouth Real Estate Investment is 4 out of 10, which indicates that the financial strength of Monmouth Real Estate Investment is poor. This is the debt and cash of Monmouth Real Estate Investment over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Monmouth Real Estate Investment has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $170.1 million and loss of $0.28 a share. Its operating margin is 49.20%, which ranks in the middle range of the companies in REITs industry. Overall, the profitability of Monmouth Real Estate Investment is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Monmouth Real Estate Investment 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. Monmouth Real Estate Investment's 3-year average revenue growth rate is in the middle range of the companies in REITs industry. Monmouth Real Estate Investment's 3-year average EBITDA growth rate is -21.3%, which ranks worse than 81% of the companies in REITs industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Monmouth Real Estate Investment's return on invested capital is 4.62, and its cost of capital is 5.75. The historical ROIC vs WACC comparison of Monmouth Real Estate Investment is shown below:
In conclusion, Monmouth Real Estate Investment (NYSE:MNR, 30-year Financials) stock is believed to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 81% of the companies in REITs industry. To learn more about Monmouth Real Estate Investment stock, you can check out its 30-year Financials here.
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