The stock of Sun Hung Kai Properties (OTCPK:SUHJY, 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 $15.37 per share and the market cap of $44.5 billion, Sun Hung Kai Properties stock is estimated to be fairly valued. GF Value for Sun Hung Kai Properties is shown in the chart below.
Because Sun Hung Kai 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 1.8% over the past three years and is estimated to grow 5.22% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Sun Hung Kai Properties has a cash-to-debt ratio of 0.23, which is in the middle range of the companies in Real Estate industry. GuruFocus ranks the overall financial strength of Sun Hung Kai Properties at 6 out of 10, which indicates that the financial strength of Sun Hung Kai Properties is fair. This is the debt and cash of Sun Hung Kai 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. Sun Hung Kai Properties has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $11.6 billion and earnings of $0.966 a share. Its operating margin is 43.57%, which ranks better than 82% of the companies in Real Estate industry. Overall, GuruFocus ranks the profitability of Sun Hung Kai Properties at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Sun Hung Kai 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. Sun Hung Kai Properties's 3-year average revenue growth rate is in the middle range of the companies in Real Estate industry. Sun Hung Kai Properties's 3-year average EBITDA growth rate is -10.9%, which ranks worse than 70% of the companies in Real Estate 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, Sun Hung Kai Properties's return on invested capital is 4.13, and its cost of capital is 7.63. The historical ROIC vs WACC comparison of Sun Hung Kai Properties is shown below:
Overall, the stock of Sun Hung Kai Properties (OTCPK:SUHJY, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 70% of the companies in Real Estate industry. To learn more about Sun Hung Kai Properties stock, you can check out its 30-year Financials here.
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