Assessing Extra Space Storage After Five Year 38.6% Gain and Modest Recent Pullback

• Whether you are wondering if Extra Space Storage is a quietly compelling value play or simply fairly priced real estate at this point in the cycle, this breakdown is designed to give you a clear, no nonsense view.
• The stock has slipped 1.6% over the last week and is roughly flat over 30 days, but that comes after a 38.6% gain over five years that still hints at solid long term compounding despite a tougher recent stretch.
• Recent headlines have focused on sector wide self storage competition and shifting demand for space, with analysts debating how sustainable pandemic era occupancy and pricing really are. At the same time, investors are watching balance sheet discipline and acquisition strategy as key signals for how Extra Space might navigate the next leg of the real estate cycle.
• On our framework, Extra Space Storage currently scores a 3 out of 6 for undervaluation, which suggests some value support but not a screaming bargain, at least on the surface. Next, we will walk through how different valuation approaches line up on this name, and then finish with a more nuanced way to think about what the market might really be pricing in.

Extra Space Storage delivered -3.8% returns over the last year. See how this stacks up to the rest of the Specialized REITs industry.

Approach 1: Extra Space Storage Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model projects Extra Space Storage adjusted funds from operations into the future and then discounts those cash flows back to today to estimate what the business is worth in $ right now.

On this basis, Extra Space is generating roughly $1.68 billion in free cash flow today, with analysts expecting this to climb toward about $1.98 billion by 2029. Beyond the explicit analyst horizon, Simply Wall St extrapolates growth, with projections edging above $2.4 billion by 2035 as self storage demand and pricing steadily expand.

Rolling all of these projected $ cash flows together and discounting them back gives an estimated intrinsic value of about $170.65 per share. Compared with the current share price, this implies Extra Space Storage is trading at roughly a 23.3% discount, which indicates the market is pricing in a more cautious outlook than the cash flow forecasts imply.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Extra Space Storage is undervalued by 23.3%. Track this in your watchlist or portfolio, or discover 918 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Extra Space Storage.

Approach 2: Extra Space Storage Price vs Earnings (PE)

For a profitable REIT like Extra Space Storage, the price to earnings ratio is a natural way to judge valuation because it directly links what investors pay today with the earnings the business is generating right now.

In general, higher growth and lower perceived risk justify a higher PE, while slower growth or more uncertainty typically pull a fair PE down. So the question is not just whether a PE looks high or low in isolation, but whether it makes sense given the company’s outlook and risk profile.

Extra Space Storage currently trades on a PE of about 29.3x, above both the specialized REITs industry average of roughly 16.5x and the peer group average near 26.9x. Simply Wall St’s proprietary Fair Ratio for Extra Space comes in higher still at around 32.5x, reflecting the company’s earnings growth prospects, margins, scale and risk characteristics. This Fair Ratio is more informative than a simple industry or peer comparison because it adjusts for the specific mix of growth, risk, profitability, industry and market cap for Extra Space rather than assuming all REITs deserve similar multiples. On this framework, the current PE sits below the Fair Ratio, which points to a modest valuation gap.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Extra Space Storage Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. Narratives are essentially your story about a company expressed through your assumptions for its future revenue, earnings, margins and fair value, all linked together in one place.

A Narrative connects three things: what you believe is happening in the business, how that belief translates into a financial forecast, and what that forecast implies for a fair value. This allows you to see clearly why you think a stock is cheap or expensive.

On Simply Wall St, Narratives sit inside the Community page and are used by millions of investors. They make it easy to plug in or adjust assumptions, compare the resulting fair value with the current share price, and decide whether that difference suggests it is time to buy, hold or sell.

Because Narratives are updated dynamically as new earnings, news and guidance arrive, your view stays current. You can easily see, for example, why one Extra Space Storage Narrative might justify a higher fair value of about $178 while a more cautious one anchors closer to $141, even though both are looking at the same company and data.

Do you think there's more to the story for Extra Space Storage? Head over to our Community to see what others are saying!

This article by Simply Wall St 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. Simply Wall St has no position in any stocks mentioned.

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