The stock of Saul Centers (NYSE:BFS, 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 $42.24 per share and the market cap of $992.6 million, Saul Centers stock is estimated to be modestly undervalued. GF Value for Saul Centers is shown in the chart below.
Because Saul Centers 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. Saul Centers has a cash-to-debt ratio of 0.01, which ranks worse than 87% of the companies in REITs industry. Based on this, GuruFocus ranks Saul Centers's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of Saul Centers 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. Saul Centers has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $227 million and earnings of $1.12 a share. Its operating margin is 41.82%, which ranks in the middle range of the companies in REITs industry. Overall, GuruFocus ranks the profitability of Saul Centers at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Saul Centers 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Saul Centers is -2.1%, which ranks in the middle range of the companies in REITs industry. The 3-year average EBITDA growth rate is 9%, which ranks better than 79% 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, Saul Centers's ROIC is 5.34 while its WACC came in at 6.31. The historical ROIC vs WACC comparison of Saul Centers is shown below:
In conclusion, The stock of Saul Centers (NYSE:BFS, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 79% of the companies in REITs industry. To learn more about Saul Centers 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.
