Is Wharf Real Estate Investment Company Limited (HKG:1997) A Real Estate Leader?

Wharf Real Estate Investment Company Limited (SEHK:1997), a HK$152.27B large-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 investments typically display unique and attractive investment characteristics relative to other stocks and bonds, especially over a long time horizon. Real estate analysts are forecasting for the entire industry, negative growth in the upcoming year , and a single-digit 9.53% growth over the next couple of years. This rate is below the growth rate of the Hong Kong stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the real estate sector right now. Today, I will analyse the industry outlook, and also determine whether Wharf Real Estate Investment is a laggard or leader relative to its real estate sector peers. View our latest analysis for Wharf Real Estate Investment

What’s the catalyst for Wharf Real Estate Investment'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 past year, the industry delivered growth in the twenties, beating the Hong Kong market growth of 10.89%. Given the lack of analyst consensus in Wharf Real Estate Investment’s outlook, we could potentially assume the stock’s growth rate broadly follows its real estate industry peers. This means it is an attractive growth stock relative to the wider Hong Kong stock market.

Is Wharf Real Estate Investment and the sector relatively cheap?

The real estate sector's PE is currently hovering around 9.15x, relatively similar to the rest of the Hong Kong stock market PE of 13.25x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 8.41% on equities compared to the market’s 10.16%. Since Wharf Real Estate Investment’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Wharf Real Estate Investment’s value is to assume the stock should be relatively in-line with its industry. In terms of returns, Wharf Real Estate Investment generated 4.91% in the past year, which is 3.50% below the real estate sector.

Next Steps:

Real estate stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. If growth was one of your main investment catalyst in the sector, now would be the time to revisit your holdings in Wharf Real Estate Investment. Keep in mind the sector is trading relatively in-line with the rest of the market, which may mean you’ll be selling out at a reasonable price. However, before you make a decision on the stock, I suggest you look at Wharf Real Estate Investment's fundamentals in order to build a holistic investment thesis.

• 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
• 2. Historical Track Record: What has 1997's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
• 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Wharf Real Estate Investment? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.