Yahoo Finanza SL Green Realty Stock Shows Every Sign Of Being Modestly Undervalued
- By GF Value
The stock of SL Green Realty (NYSE:SLG, 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 $72.92 per share and the market cap of $5.1 billion, SL Green Realty stock shows every sign of being modestly undervalued. GF Value for SL Green Realty is shown in the chart below.
Because SL Green Realty is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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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. SL Green Realty has a cash-to-debt ratio of 0.06, which ranks in the middle range of the companies in REITs industry. Based on this, GuruFocus ranks SL Green Realty's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of SL Green Realty over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. SL Green Realty has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $964.5 million and earnings of $3.4 a share. Its operating margin of 12.15% worse than 83% of the companies in REITs industry. Overall, GuruFocus ranks SL Green Realty's profitability as fair. This is the revenue and net income of SL Green Realty 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 SL Green Realty is -2.3%, which ranks in the middle range of the companies in REITs industry. The 3-year average EBITDA growth rate is 13.9%, which ranks better than 84% 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, SL Green Realty's ROIC is 0.96 while its WACC came in at 6.71. The historical ROIC vs WACC comparison of SL Green Realty is shown below:
In conclusion, the stock of SL Green Realty (NYSE:SLG, 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 84% of the companies in REITs industry. To learn more about SL Green Realty stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
