Arbor Realty Trust Inc (NYSE:ABR), a US$1.02b 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 investment trust, or a REIT, is a collective vehicle for investing in real estate that began in the US and has since been adopted worldwide as an investment asset. Real estate analysts are forecasting for the entire industry, a fairly unexciting growth rate of 8.50% in the upcoming year . Should your portfolio be overweight in the real estate sector at the moment? Today, I will analyse the industry outlook, and also determine whether Arbor Realty Trust is a laggard or leader relative to its real estate sector peers.
What’s the catalyst for Arbor Realty Trust’s sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. In the past year, the industry delivered growth of 1.39%, though still underperforming the wider US stock market. Arbor Realty Trust leads the pack with its impressive earnings growth of 33.41% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Arbor Realty Trust poised to deliver a 14.95% growth over the next couple of years compared to the industry’s 8.50%. This growth is a median of profitable companies of 24 Mortgage REITs companies in US including Exantas Capital, Owens Realty Mortgage and AG Mortgage Investment Trust. This growth may make Arbor Realty Trust a more expensive stock relative to its peers.
Is Arbor Realty Trust and the sector relatively cheap?
REIT companies are typically trading at a PE of 10.22x, lower than the rest of the US stock market PE of 18.11x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 9.32% on equities compared to the market’s 11.18%. On the stock-level, Arbor Realty Trust is trading at a PE ratio of 9x, which is relatively in-line with the average REIT stock. In terms of returns, Arbor Realty Trust generated 12.46% in the past year, which is 3.14% over the REIT sector.
If Arbor Realty Trust has been on your watchlist for a while, now may not be the best time to enter into the stock. The company is a REIT industry laggard in terms of its future growth outlook, and is trading relatively in-line with its peers. If growth and mispricing are important aspects for your investment thesis, there may be better investments in the real estate sector. However, before you make a decision on the stock, I suggest you look at Arbor Realty Trust’s fundamentals in order to build a holistic investment thesis.
- 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.
- Historical Track Record: What has ABR’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.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Arbor Realty Trust? 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 email@example.com.