Monmouth Real Estate Investment Corporation (NYSE:MNR), a US$1.37b small-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 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 relatively muted growth of 0.003% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Is now the right time to pick up some shares in real estate companies? Below, I will examine the sector growth prospects, and also determine whether Monmouth Real Estate Investment is a laggard or leader relative to its real estate sector peers.
What’s the catalyst for Monmouth Real Estate Investment’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. Over the past year, the industry saw growth of 8.5%, though still underperforming the wider US stock market. Monmouth Real Estate Investment leads the pack with its impressive earnings growth of 80.7% over the past year. Furthermore, analysts are expecting this trend of above-industry growth to continue, with Monmouth Real Estate Investment poised to deliver a 9.4% growth over the next couple of years compared to the industry’s 0.003%. This growth is a median of profitable companies of 25 REITs companies in US including BRT Apartments, Braemar Hotels & Resorts and NexPoint Residential Trust. This growth may make Monmouth Real Estate Investment a more expensive stock relative to its peers.
Is Monmouth Real Estate Investment and the sector relatively cheap?
The REIT sector’s PE is currently hovering around 27.96x, higher than the rest of the US stock market PE of 19.8x. This illustrates a somewhat overpriced sector compared to the rest of the market. However, the industry returned a lower 6.6% compared to the market’s 10.7%, which may be indicative of past headwinds. On the stock-level, Monmouth Real Estate Investment is trading at a higher PE ratio of 35.33x, making it more expensive than the average REIT stock. In terms of returns, Monmouth Real Estate Investment generated 6.9% in the past year, in-line with its industry average.
Monmouth Real Estate Investment’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 the company’s price, suggested by its higher PE ratio relative to its peers. If Monmouth Real Estate Investment 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, before you make a decision on the stock, I suggest you look at Monmouth Real Estate Investment’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 MNR’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 Monmouth Real Estate Investment? 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.