A Look at H&R REIT (TSX:HR.UN) Valuation Following Widening Q3 Net Losses

H&R Real Estate Investment Trust (TSX:HR.UN) just released its third quarter results, catching investors’ attention with a sharp rise in net losses for both the quarter and year to date, while sales remained steady year over year.

See our latest analysis for H&R Real Estate Investment Trust.

Even with the recent headlines around widening losses, H&R Real Estate Investment Trust’s unit price has shown resilience, holding at $10.08 and delivering an 8.2% share price increase year-to-date. Longer-term momentum is clear. A robust 18% total shareholder return over the past year signals that investors still see growth potential despite near-term setbacks.

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With a meaningful discount to analyst price targets and a strong total return over the past year, investors are left to wonder whether H&R REIT is undervalued or if the market has already factored future growth into its current share price.

Price-to-Sales Ratio of 3x: Is it justified?

H&R Real Estate Investment Trust is trading at a price-to-sales (P/S) ratio of 3x, putting it slightly above both its North American REIT peers (2.7x) and its direct competitors (2.9x). The current share price stands at CA$10.08 and signals that investors are paying a modest premium for each dollar of revenue compared to the sector.

The price-to-sales ratio measures the value the market places on every dollar of the company’s sales. For real estate investment trusts, this multiple is useful since earnings can fluctuate year to year, but rental revenues are often more stable and comparable across companies.

Though the P/S ratio appears expensive relative to industry averages, H&R’s valuation looks more attractive when weighed against the SWS fair price-to-sales multiple, which is estimated at 4x. This suggests that, from a fundamental perspective, the market might be underestimating its revenue-generating potential moving forward.

Compared to peers, H&R’s P/S ratio commands a premium. However, if the market recognizes the company’s growth and stabilizing performance, there is potential for its valuation to trend upward toward the higher fair ratio, especially if future revenue growth aligns with projections.

Explore the SWS fair ratio for H&R Real Estate Investment Trust

Result: Price-to-Sales Ratio of 3x (ABOUT RIGHT)

However, ongoing net losses and recent share price volatility remain risks. These factors could challenge optimism if financial performance does not stabilize soon.

Find out about the key risks to this H&R Real Estate Investment Trust narrative.

Another View: Discounted Cash Flow Valuation

Taking a different perspective, the SWS DCF model estimates H&R REIT’s fair value at CA$15.35 per unit. This is over 34% higher than its current market price, suggesting the company is significantly undervalued. Could the cash flow outlook matter more than today’s headline numbers?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out H&R Real Estate Investment Trust for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 927 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own H&R Real Estate Investment Trust Narrative

If you’re keen to dig deeper or want to shape your own outlook, you can easily craft a personalized narrative in just a few minutes: Do it your way

A great starting point for your H&R Real Estate Investment Trust research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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