Should Your Next Investment In The Real Estate Industry Be In Oberoi Realty Limited (NSE:OBEROIRLTY)?

Oberoi Realty Limited (NSEI:OBEROIRLTY), a INR₹160.11B mid-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 positive double-digit growth of 11.40% in the upcoming year , and an optimistic near-term growth of 17.27% over the next couple of years. This rate is larger than the growth rate of the Indian 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. In this article, I’ll take you through the real estate sector growth expectations, and also determine whether Oberoi Realty is a laggard or leader relative to its real estate sector peers. See our latest analysis for Oberoi Realty

What’s the catalyst for Oberoi Realty'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 teens, beating the Indian market growth of 12.84%. Oberoi Realty lags the pack with its negative growth rate of -17.40% over the past year, which indicates the company will be growing at a slower pace than its real estate peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of over 100% in the upcoming year. This future growth may make Oberoi Realty a more expensive stock relative to its peers.

Is Oberoi Realty and the sector relatively cheap?

The real estate sector's PE is currently hovering around 27x, relatively similar to the rest of the Indian stock market PE of 28x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 4.62% compared to the market’s 9.83%, potentially indicative of past headwinds. On the stock-level, Oberoi Realty is trading at a higher PE ratio of 42x, making it more expensive than the average real estate stock. In terms of returns, Oberoi Realty generated 6.72% in the past year, which is 2.09% over the real estate sector.

What this means for you:

Are you a shareholder? Oberoi Realty’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in Oberoi Realty’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Oberoi Realty as part of your portfolio. However, if you’re relatively concentrated in real estate, the Oberoi Realty’s high PE may signal the right time to sell.

Are you a potential investor? If Oberoi Realty has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other real estate companies. However, that being said, its industry-beating growth prospects may be the reason for high relative valuation. I suggest you look at Oberoi Realty’s future cash flows in order to assess whether the stock is trading at a reasonable price on this basis.

For a deeper dive into Oberoi Realty'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.

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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.