The stock of Seritage Growth Properties (NYSE:SRG, 30-year Financials) is estimated to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $15.98 per share and the market cap of $902 million, Seritage Growth Properties stock is believed to be modestly undervalued. GF Value for Seritage Growth Properties is shown in the chart below.
Because Seritage Growth Properties is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliever higher future returns at reduced risk.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Seritage Growth Properties has a cash-to-debt ratio of 0.09, which ranks in the middle range of the companies in REITs industry. Based on this, GuruFocus ranks Seritage Growth Properties's financial strength as 2 out of 10, suggesting poor balance sheet. This is the debt and cash of Seritage Growth Properties over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Seritage Growth Properties has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $114.5 million and loss of $2.51 a share. Its operating margin is -61.55%, which ranks in the bottom 10% of the companies in REITs industry. Overall, GuruFocus ranks the profitability of Seritage Growth Properties at 1 out of 10, which indicates poor profitability. This is the revenue and net income of Seritage Growth Properties over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Seritage Growth Properties is -24.7%, which ranks in the bottom 10% of the companies in REITs industry. The 3-year average EBITDA growth rate is -47.6%, which ranks in the bottom 10% of the companies in REITs industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Seritage Growth Properties's ROIC is -2.85 while its WACC came in at 9.04. The historical ROIC vs WACC comparison of Seritage Growth Properties is shown below:
Overall, the stock of Seritage Growth Properties (NYSE:SRG, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is poor and its profitability is poor. Its growth ranks in the bottom 10% of the companies in REITs industry. To learn more about Seritage Growth Properties stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
