Is First Sponsor Group Limited (SGX:ADN) Still A Cheap Real Estate Stock?

First Sponsor Group Limited (SGX:ADN), a S$810.99m 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 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 massive growth of 60.50% over the next couple of years. This rate is larger than the growth rate of the Singapore stock market as a whole. Is now the right time to pick up some shares in real estate companies? Today, I will analyse the industry outlook, and also determine whether First Sponsor Group is a laggard or leader relative to its real estate sector peers.

Check out our latest analysis for First Sponsor Group

What’s the catalyst for First Sponsor Group'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. Over the past year, the industry saw growth in the thirties, beating the Singapore market growth of 11.27%. First Sponsor Group lags the pack with its negative growth rate of -20.08% over the past year, which indicates the company has been growing at a slower pace than its real estate peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 34.25% in the upcoming year. This future growth may make First Sponsor Group a more expensive stock relative to its peers.

Is First Sponsor Group and the sector relatively cheap?

The real estate industry is trading at a PE ratio of 9.9x, in-line with the Singapore stock market PE of 12.63x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 6.54% on equities compared to the market’s 7.75%. On the stock-level, First Sponsor Group is trading at a PE ratio of 8.76x, which is relatively in-line with the average real estate stock. In terms of returns, First Sponsor Group generated 7.66% in the past year, which is 1.13% over the real estate sector.

Next Steps:

First Sponsor 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 the stock is trading in-line with its peers. If First Sponsor 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. However, if you’re hoping to gain from an undervalued mispricing, this is probably not the best time. However, before you make a decision on the stock, I suggest you look at First Sponsor Group'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 ADN'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 First Sponsor Group? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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.