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Agricultural Land Trust (ASX:AGJ), a AUDA$6.44M small-cap, operates in the real estate industry which remains the single largest sector globally, and has continued to play a key role in investor portfolios as an asset class. Real estate investment trust, or a REIT, is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Australian stock market as a whole. Is the real estate industry an attractive sector-play right now? Below, I will examine the sector growth prospects, as well as evaluate whether Agricultural Land Trust is lagging or leading its competitors in the industry. See our latest analysis for Agricultural Land Trust
What’s the catalyst for Agricultural Land Trust’s sector growth?
ASX:AGJ Past Future Earnings Jan 14th 18 Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. In the past year, the industry delivered negative growth of -4.47%, underperforming the Australian market growth of 6.88%. Agricultural Land Trust lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Agricultural Land Trust may be trading cheaper than its peers.
Is Agricultural Land Trust and the sector relatively cheap?
ASX:AGJ PE PEG Gauge Jan 14th 18 The REIT sector’s PE is currently hovering around 8x, lower than the rest of the Australian stock market PE of 18x. This means the industry, on average, is relatively undervalued compared to the wider market – a potential mispricing opportunity here! Furthermore, the industry returned a higher 15.57% compared to the market’s 11.86%, making it a potentially attractive sector. Since Agricultural Land Trust’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Agricultural Land Trust’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Agricultural Land Trust has been a REIT industry laggard in the past year. If your initial investment thesis is around the growth prospects of Agricultural Land Trust, there are other REIT companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Agricultural Land Trust fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Agricultural Land Trust has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its REIT peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Agricultural Land Trust’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Agricultural Land Trust’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.
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