Hudson Pacific Properties Inc (NYSE:HPP), a USD$5.20B mid-cap, operates in the real estate industry which remains the single largest sector globally, and has continued to play a key role in investor portfolios as an asset class. 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, negative growth in the upcoming year . Should your portfolio be overweight in the real estate sector at the moment? Today, I will analyse the industry outlook, as well as evaluate whether Hudson Pacific Properties is lagging or leading its competitors in the industry. Check out our latest analysis for Hudson Pacific Properties
What’s the catalyst for Hudson Pacific Properties’s sector growth?
Concerns surrounding rate increases and treasury yield movements have made investors dubious around investing in REIT stocks. This is because REITs tend to be dependent on debt funding. They are also considered as bond investment alternatives due to their high and stable dividend payments. In the past year, the industry delivered negative growth of -4.68%, underperforming the US market growth of 10.79%. Hudson Pacific Properties leads the pack with its impressive industry-beating growth rate of -2.36% in the upcoming year. This optimistic future outlook may make Hudson Pacific Properties a more expensive stock relative to its peers.
Is Hudson Pacific Properties and the sector relatively cheap?
The REIT industry is trading at a PE ratio of 30x, above the broader US stock market PE of 20x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 7.96% compared to the market’s 10.46%, which may be indicative of past headwinds. On the stock-level, Hudson Pacific Properties is trading at a higher PE ratio of 85x, making it more expensive than the average REIT stock. In terms of returns, Hudson Pacific Properties generated 1.94% in the past year, which is 6% below the REIT sector.
What this means for you:
Are you a shareholder? Hudson Pacific Properties’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 Hudson Pacific Properties’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 Hudson Pacific Properties as part of your portfolio. However, if you’re relatively concentrated in REIT, the Hudson Pacific Properties’s high PE may signal the right time to sell.
Are you a potential investor? If Hudson Pacific Properties 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 REIT companies. However, that being said, its industry-beating growth prospects may be the reason for high relative valuation. I suggest you look at Hudson Pacific Properties’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 Hudson Pacific Properties’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.