The stock of Link Real Estate Investment Trust (HKSE:00823, 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 HK$78.2 per share and the market cap of HK$162.8 billion, Link Real Estate Investment Trust stock appears to be fairly valued. GF Value for Link Real Estate Investment Trust is shown in the chart below.
Because Link Real Estate Investment Trust is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 4.5% over the past three years and is estimated to grow 2.99% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
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. Link Real Estate Investment Trust has a cash-to-debt ratio of 0.07, which is in the middle range of the companies in REITs industry. The overall financial strength of Link Real Estate Investment Trust is 5 out of 10, which indicates that the financial strength of Link Real Estate Investment Trust is fair. This is the debt and cash of Link Real Estate Investment Trust 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. Link Real Estate Investment Trust has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of HK$10.6 billion and loss of HK$13.36 a share. Its operating margin is 72.69%, which ranks better than 86% of the companies in REITs industry. Overall, GuruFocus ranks the profitability of Link Real Estate Investment Trust at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Link Real Estate Investment Trust 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 Link Real Estate Investment Trust is 4.5%, which ranks better than 83% of the companies in REITs industry. The 3-year average EBITDA growth rate is -61.8%, which ranks in the bottom 10% of the companies in REITs industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Link Real Estate Investment Trust’s return on invested capital is 1.57, and its cost of capital is 5.33. The historical ROIC vs WACC comparison of Link Real Estate Investment Trust is shown below:
Overall, the stock of Link Real Estate Investment Trust (HKSE:00823, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the bottom 10% of the companies in REITs industry. To learn more about Link Real Estate Investment Trust 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.
