The stock of UDR (NYSE:UDR, 30-year Financials) shows every sign of being 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 $46.39 per share and the market cap of $13.8 billion, UDR stock is believed to be fairly valued. GF Value for UDR is shown in the chart below.
Because UDR is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 4.3% over the past five years.
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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. UDR has a cash-to-debt ratio of 0.00, which ranks in the bottom 10% of the companies in REITs industry. Based on this, GuruFocus ranks UDR's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of UDR over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. UDR has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $1.2 billion and earnings of $0.2 a share. Its operating margin of 9.96% worse than 85% of the companies in REITs industry. Overall, GuruFocus ranks UDR's profitability as fair. This is the revenue and net income of UDR 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 UDR is 4.3%, which ranks better than 72% of the companies in REITs industry. The 3-year average EBITDA growth is 5.3%, which ranks better than 71% 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, UDR's return on invested capital is 1.22, and its cost of capital is 5.76.
In closing, UDR (NYSE:UDR, 30-year Financials) stock shows every sign of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 71% of the companies in REITs industry. To learn more about UDR stock, you can check out its 30-year Financials here.
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