First Property Group plc (AIM:FPO), a GBP£55.97M small-cap, operates in the real estate 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, 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 UK stock market as a whole. Is the real estate industry an attractive sector-play right now? Today, I will analyse the industry outlook, as well as evaluate whether First Property Group is lagging or leading its competitors in the industry. Check out our latest analysis for First Property Group
What’s the catalyst for First Property Group’s sector growth?
Not every category of real estate is likely to be impacted the same by macroeconomic factors such as interest rate hikes, and not all locations are primed to grow. So, investors must remain cautiously optimistic and analyse the fundamentals of the underlying industry. Over the past year, the industry saw growth in the twenties, beating the UK market growth of 11.51%. First Property Group leads the pack with its impressive earnings growth of 87.13% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with First Property Group poised to deliver a -16.56% growth over the next couple of years. This growth may make First Property Group a more expensive stock relative to its peers.
Is First Property Group and the sector relatively cheap?
The real estate sector’s PE is currently hovering around 7x, below the broader UK stock market PE of 18x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 12.49% on equities compared to the market’s 12.78%. On the stock-level, First Property Group is trading at a PE ratio of 7x, which is relatively in-line with the average real estate stock. In terms of returns, First Property Group generated 22.61% in the past year, which is 10.11% over the real estate sector.
What this means for you:
Are you a shareholder? First Property Group’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this high growth prospect is most likely factored into the share price, given First Property Group is trading in-line with its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto First Property Group as part of your portfolio. However, if you’re relatively concentrated in real estate, you may want to value First Property Group based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If First Property Group has been on your watchlist for a while, now may be the time to enter into the stock. If you like its growth prospects, you’ll be paying a fair value for the company, given that it is trading relatively in-line with its peers. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. Before you make a decision on the stock, I suggest you take a look at other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into First Property Group’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.