Gyrodyne LLC (NASDAQ:GYRO), a USD$31.94M small-cap, is a real estate company operating in an industry which is the most prevalent industry in the global economy, and as an asset class, it has continued to play a crucial role in the portfolios of various investors. Real estate assets usually exhibit distinct and desirable investment features compared to other types of securities, in particular, over a long period of time. Real estate analysts are forecasting for the entire industry, a somewhat weaker growth of 0.59% in the upcoming year, and Should your portfolio be overweight in the real estate sector at the moment? Today, I will analyse the industry outlook, and also determine whether GYRO is a laggard or leader relative to its real estate sector peers. Check out our latest analysis for Gyrodyne
What’s the catalyst for GYRO’s sector growth?
Over the past couple of years, as yields for high quality real estate investments have become under pressure, investors have swung towards more niche and diversified buildings such as medical offices, student housing and data storage facilities. In the previous year, the industry endured negative growth of -6.86%, underperforming the US market growth of 4.49%. GYRO lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its real estate peers. As the company trails the rest of the industry in terms of growth, GYRO may also be a cheaper stock relative to its peers.
Is GYRO and the sector relatively cheap?
Real estate companies are typically trading at a PE of 21x, in-line with the US stock market PE of 22x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 9.09% on equities compared to the market’s 9.99%. Since GYRO’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge GYRO’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? GYRO has been a real estate industry laggard in the past year. If your initial investment thesis is around the growth prospects of GYRO, there are other real estate companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how GYRO fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If GYRO 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 real estate 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 GYRO’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Gyrodyne’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.