- By GF Value
The stock of Preferred Apartment Communities (NYSE:APTS, 30-year Financials) appears 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 $10.33 per share and the market cap of $516.4 million, Preferred Apartment Communities stock appears to be modestly undervalued. GF Value for Preferred Apartment Communities is shown in the chart below.
Warning! GuruFocus has detected 11 Warning Signs with APTS. Click here to check it out.
APTS 15-Year Financial Data
The intrinsic value of APTS
Peter Lynch Chart of APTS
Because Preferred Apartment Communities is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 3.8% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Preferred Apartment Communities has a cash-to-debt ratio of 0.01, which is worse than 89% of the companies in REITs industry. The overall financial strength of Preferred Apartment Communities is 2 out of 10, which indicates that the financial strength of Preferred Apartment Communities is poor. This is the debt and cash of Preferred Apartment Communities over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Preferred Apartment Communities has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $502.2 million and loss of $7.06 a share. Its operating margin is -15.94%, which ranks in the bottom 10% of the companies in REITs industry. Overall, the profitability of Preferred Apartment Communities is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Preferred Apartment Communities 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 Preferred Apartment Communities is 3.8%, which ranks better than 69% of the companies in REITs industry. The 3-year average EBITDA growth rate is -24.7%, which ranks worse than 85% 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, Preferred Apartment Communities's ROIC is -1.76 while its WACC came in at 5.23. The historical ROIC vs WACC comparison of Preferred Apartment Communities is shown below:
Overall, the stock of Preferred Apartment Communities (NYSE:APTS, 30-year Financials) is believed to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 85% of the companies in REITs industry. To learn more about Preferred Apartment Communities stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.