How To Perform Analysis of Property Stock
Property is always a good business because people need it either as a place to live, work and play. There are so many properties to choose from. It ranges from empty lot of land to a whole superblock that contain apartments, retail malls, entertainment spaces and even hotels.
But if you are not a ridiculously rich person, you cannot own so many properties. Then you are restricted to may be buying stocks of the companies owning those properties. That is OK, so you can have the benefit from the development of the industry without losing so much money.
Just like any entrepreneur, though, you still need to monitor your investment closely. You want to see whether the stock is giving you enough return over the investment period. Otherwise, you should consider shifting your portfolio to other stocks. These are 5 things that you should look for in the analysis of property stock.
Net Asset Value: How Much Your Property Worth
The most common indicator for the worth of a property is simply by looking at Net Asset Value number. Often shortened to NAV, it is the total sum of all assets measured at fair or market value less all the liabilities of a company.
How to calculate them? Usually we ask professional external appraiser to do it. If it is a simple empty land, then the calculation would also be simple. It is only the market value of the land minus how much debt the owner still has.
However, since we are talking about property stock, usually it means that it is complicated. Valuing a superblock needs a whole lot of competencies like estimating whether the pricing strategy is efficient, or the potential development of the area and tax calculation. Appraisers would use different methods to different kind of property in the portfolio.
So you should just focus on the result and how to read it. Find out two things. First is the NAV of the property company you are analyzing, e.g. IDR1 billion. Then you need to look for the outstanding shares the company has. Outstanding shares means the number of shares the company is distributing to the owners of the company. For the sake of the discussion, the number is 100 million shares.
It means your NAV/ share is IDR1 billion : 100 million shares IDR10/ share. Then then maximal price that you can get for your stock is IDR10/ share. Don’t invest in that property if you have to pay that price, unless you are expecting the dividends.
But NAV moves. As the company invest more, the NAV may increase. It may also decrease if the Company is raising more debt or selling one of its properties. So don’t fret if you see that you have reached the NAV of your properties. Look at its strategy, as we will discussed in number four.
To know whether your NAV is able to increase or not, you could also see Land for Development account in the balance sheet of the company. It means that the company owns land that are not optimized or sold. If the number is significantly high, the NAV may rise in the future due to the development of that land.
Look for the Profitability of Your Company
Whether you have large assets or small ones, at the end you want to know how much profit your investment will generate. If you own stocks of a company, means that you are sharing the company’s profit to your fellow shareholders. Therefore, you cannot just take the number provided in the net profit and claim it as your own.
If you see the company’s net profit or Earning After Tax is IDR100 million, then look further down. Below it there is an account called Basic Earnings per Share. It is basically the net profit divided by the outstanding shares. It is your share of the profit, given you have 1 share. If you have 10, then multiply it by 10.
Basic Earnings per Share is the first factor of looking at profitability aspect. You can get the idea how much the number means for you by calculating Earning Yield. It is Earning Yield = Basic Earnings per Share : Share Price
Share price is the investment that you made. So, earning yield is how much is your investment profitable. The higher the number, the better your profitability is.
Read Research Reports for Further Analysis
Financial analysts are those who are expert in analyzing financial and build valuation modelling. Their services are rendered by securities companies and investment managers to provide them with recommendations on which stocks to buy and to avoid.
You can also enjoy this service too from your broker. Some securities companies are giving the reports to their users freely as a service and sweetener for using their brokerage services.
There are 2 major things to look at when you are looking at the analysis. One is the recommendation of the analysts. It can be either Buy or Undervalued, Hold or Neutral, and Sell or Overvalued. This indicates how the analyst’s perspective on the stock they are analyzing. If they recommend buy, it means for them you should buy the stock. However, this is not a promise of gain as it is stated in the disclaimer at the end of the report.
Second, is the target price. Target price means the fair value of the stock, based on multiple methods used by the analysts. This is an estimate of how much you can fare if you own this stock.
Check Out the Company’s Strategy
Different strategy has different results under different situation. Some property companies are aiming big. They own huge land, build skyscrapers and so on. But some are simply developing simple housing complex in developing areas.
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You may want to check out the strategy before you perform analysis of property stock, especially when you are working with profitability. Selling apartment units may not yield large profit compared to selling land lots. But with the same square meter, apartment units may be sold more, and deliver better future because land price is never going down.
Calculate Capital Gain as Your Return
The two main return that you should expect from investing in a stock is dividend and capital gain. Dividend is net income distributed to the shareholders, either in cash or in stock.
Capital Gain or Loss is the difference between the selling price and the buying price of your stock. This is not controlled by the company, rather by the market.
Capital gain or loss is influenced by news relating to the company, the general situation of investment, and liquidity of the stock – that is how many trades happen in one day. Your analysis of property stock should include this as it may play significant role in your investment value.
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