The stock of National Storage Affiliates Trust (NYSE:NSA, 30-year Financials) is estimated to be significantly 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 $50.86 per share and the market cap of $3.9 billion, National Storage Affiliates Trust stock shows every sign of being significantly overvalued. GF Value for National Storage Affiliates Trust is shown in the chart below.
Because National Storage Affiliates Trust is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 2.4% over the past five years.
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. National Storage Affiliates Trust has a cash-to-debt ratio of 0.01, which ranks worse than 88% of the companies in REITs industry. Based on this, GuruFocus ranks National Storage Affiliates Trust’s financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of National Storage Affiliates Trust 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. National Storage Affiliates Trust has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $451 million and earnings of $0.62 a share. Its operating margin of 35.12% in the middle range of the companies in REITs industry. Overall, GuruFocus ranks National Storage Affiliates Trust’s profitability as fair. This is the revenue and net income of National Storage Affiliates Trust 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. National Storage Affiliates Trust’s 3-year average revenue growth rate is in the middle range of the companies in REITs industry. National Storage Affiliates Trust’s 3-year average EBITDA growth rate is 3.6%, which ranks better than 67% 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, National Storage Affiliates Trust’s return on invested capital is 4.36, and its cost of capital is 3.45. The historical ROIC vs WACC comparison of National Storage Affiliates Trust is shown below:
In short, the stock of National Storage Affiliates Trust (NYSE:NSA, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 67% of the companies in REITs industry. To learn more about National Storage Affiliates Trust stock, you can check out its 30-year Financials here.
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