Monmouth Real Estate Investment Stock Gives Every Indication Of Being Modestly Overvalued

The stock of Monmouth Real Estate Investment (NYSE: MNR, 30-year financial data) is considered to be slightly overvalued according to the GuruFocus Value calculation. The GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should be traded. The calculation is based on the historical multiples at which the share traded, past business growth and analyst estimates of future business development. If a stock’s price is well above the GF value line, it is overvalued and its future return is likely to be poor. On the other hand, the future return is likely to be higher if it is well below the GF value line. With a current price of $ 17.98 per share and a market capitalization of $ 1.8 billion, Monmouth Real Estate Investment stock appears to be slightly overvalued. The GF value for Monmouth Real Estate Investment is shown in the table below.

Monmouth Real Estate Investment GF table of values

With Monmouth Real Estate Investment being relatively overvalued, the long-term return on its stocks is likely to be lower than business growth, which averaged 2% over the past five years.

Link: These companies may deliver higher future returns with reduced risk.

It is always important to check a company’s financial strength before buying its stock. Investing in companies with low financial strength has a higher risk of permanent losses. Looking at the cash-to-debt ratio and interest coverage is a great way to understand a company’s financial strength. Monmouth Real Estate Investment has a cash-to-debt ratio of 0.16, which is better than 73% of companies in the REIT industry. The overall financial strength of Monmouth Real Estate Investment is 4 out of 10, which indicates that Monmouth Real Estate Investment’s financial strength is poor. This is Monmouth Real Estate Investment’s debt and cash over the past few years:

Debt and cash

It is less risky to invest in profitable companies, especially those with long-term profitability. A company with high profit margins is usually a safer investment than one with low profit margins. Monmouth Real Estate Investment has been profitable 9 over the past 10 years. For the past twelve months, the company had sales of $ 170.1 million and a loss of $ 0.28 per share. The operating margin is 49.20% and is therefore in the middle of the range for companies in the REIT sector. Overall, Monmouth Real Estate Investment’s profitability ranks 7th out of 10, which indicates fair profitability. This is the turnover and net income of Monmouth Real Estate Investment over the past few years:

Sales and net income

Growth is probably one of the most important factors in evaluating a company. Research by GuruFocus has shown that growth is closely related to the long-term performance of a company’s stocks. When a company’s business is growing, the company usually creates value for its shareholders, especially when the growth is profitable. When a company’s sales and earnings decrease, so does the company’s value. Monmouth Real Estate Investment’s average 3 year revenue growth rate is in the mid-range of companies in the REITs industry. Monmouth Real Estate Investment’s average 3 year EBITDA growth rate is -21.3%, which is worse than 81% of companies in the REIT industry.

Another way to determine a company’s profitability is to compare its return on investment to its weighted average cost of capital. Return on Invested Capital (ROIC) measures how well a company generates cash flow in relation to the capital it has invested in its business. The weighted average cost of capital (WACC) is the average rate that a company is expected to pay to all securityholders to fund its assets. When the ROIC is higher than the WACC, it means the company is creating value for shareholders. For the past 12 months, Monmouth Real Estate Investment’s return on investment was 4.62 and its cost of capital was 5.75. Monmouth Real Estate Investment’s historical comparison of ROIC and WACC is given below:

ROIC versus WACC

In summary, Monmouth Real Estate Investment (NYSE: MNR, 30-year financials) stock is believed to be slightly overvalued. The company’s financial situation is poor and profitability is fair. The growth is below 81% of companies in the REIT industry. To learn more about Monmouth Real Estate Investment stock, please view 30 year financials here.

To find out which high quality companies may be generating above average returns, please read GuruFocus High Quality Low Capex Screener.