Residential Secure Income plc (LSE:RESI), a GBP£184.72M small-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 , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the UK stock market as a whole. Is now the right time to pick up some shares in real estate companies? Today, I will analyse the industry outlook, and also determine whether Residential Secure Income is a laggard or leader relative to its real estate sector peers. View our latest analysis for Residential Secure Income
What’s the catalyst for Residential Secure Income’s sector growth?
LSE:RESI Growth In Earnings Jan 12th 18 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 negative growth of -7.90%, underperforming the UK market growth of 11.51%. Given the lack of analyst consensus in Residential Secure Income’s outlook, we could potentially assume the stock’s growth rate broadly follows its REIT industry peers. This means it is an attractive growth stock relative to the wider UK stock market.
Is Residential Secure Income and the sector relatively cheap?
The REIT sector’s PE is currently hovering around 11x, lower than the rest of the UK stock market PE of 18x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 11.57% on equities compared to the market’s 12.75%. Since Residential Secure Income’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Residential Secure Income’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? REIT stocks are currently expected to grow slower than the average stock on the index. This means if you’re overweight in this sector, your portfolio will be tilted towards lower-growth. However, the sector is trading at a discount to the market, which may be reflective of the lower expected growth. If your investment thesis for Residential Secure Income hasn’t changed, now may be an opportune time to accumulate more shares in the real estate stock.
Are you a potential investor? If you’ve been keeping an eye on the REIT sector, now may be the right time to dive deeper into the stock-level. Although it is expected to deliver lower growth on an industry level relative to the rest of the market, it is also trading at a PE below the average stock. In the case that the market is overly pessimistic on the real estate sector, there could be a mispricing opportunity to take advantage of.
For a deeper dive into Residential Secure Income’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.
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