SmartCentres REIT (TSX:SRU.UN): Assessing Valuation Following Quarterly Profit and Revenue Decline

When a company reveals quarterly earnings and the numbers come in under last year’s results, investors tend to take notice. That is exactly where we find SmartCentres Real Estate Investment Trust (TSX:SRU.UN) after its second quarter report. Revenue and net income slipped compared to the same period last year, with net income dropping from CA$104.55 million to CA$88.51 million, and quarterly revenue coming in at CA$223.72 million compared to the previous CA$228.05 million. Even though sales for the first half of the year were slightly up, that dip in profits is hard to miss, and it has certainly caught the market’s attention.

Despite this earnings cold shower, the stock’s momentum has been quietly building. Over the past year, SmartCentres shares have delivered a 19% total return. The climb has been most visible recently, with a 4% gain in the past month and just over 6% across the past three months. News of a steady dividend has supported this momentum as well, with the Trust affirming its monthly payout for August and reassuring income investors during a period of softer earnings.

With shares up double digits this year, the question remains: Is SmartCentres Real Estate Investment Trust offering a bargain at today’s price, or is the market simply adjusting to lower profit growth and pricing in what comes next?

Price-to-Earnings of 17x: Is it justified?

Based on the preferred multiple approach, SmartCentres Real Estate Investment Trust is currently trading at a price-to-earnings ratio of 17x. This suggests the stock is undervalued compared to both its industry and peer averages.

The price-to-earnings (P/E) ratio is a common measure for valuing real estate investment trusts, as it reflects how much investors are willing to pay for each dollar of earnings. In this case, SmartCentres’ P/E is notably lower than the North American Retail REITs industry average of 24x and its peer average of 17.7x. This positions it attractively on a relative basis.

This lower multiple implies that the market may be discounting the company’s short-term profit challenges, even though it continues to offer high quality earnings and a reliable dividend. The current valuation could signal an opportunity for investors seeking value in the Canadian real estate sector.

Result: Fair Value of $38.66 (UNDERVALUED)

See our latest analysis for SmartCentres Real Estate Investment Trust.

However, softening revenue growth or unexpected changes in the real estate market could challenge SmartCentres’ ability to maintain current returns and valuations.

Find out about the key risks to this SmartCentres Real Estate Investment Trust narrative.

Another View: SWS DCF Model Perspective

Stepping back from traditional ratios, our DCF model also points to SmartCentres being undervalued at its current market price. However, valuation is never straightforward, and models have their own limitations. Could this be a deeper opportunity, or is the market signaling caution?

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 SmartCentres 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 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 SmartCentres Real Estate Investment Trust Narrative

If you prefer to draw your own conclusions or want to explore the figures in more detail, you can easily craft your own narrative in just a few minutes. do it your way.

A great starting point for your SmartCentres 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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