The stock of Douglas Emmett (NYSE:DEI, 30-year Financials) shows every sign of being fairly valued, 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 $36.26 per share and the market cap of $6.4 billion, Douglas Emmett stock is believed to be fairly valued. GF Value for Douglas Emmett is shown in the chart below.
Because Douglas Emmett is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 0.3% over the past five years.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Douglas Emmett has a cash-to-debt ratio of 0.04, which which ranks in the middle range of the companies in REITs industry. The overall financial strength of Douglas Emmett is 3 out of 10, which indicates that the financial strength of Douglas Emmett is poor. This is the debt and cash of Douglas Emmett over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Douglas Emmett has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $856.5 million and earnings of $0.19 a share. Its operating margin is 16.29%, which ranks worse than 80% of the companies in REITs industry. Overall, the profitability of Douglas Emmett is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Douglas Emmett 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 Douglas Emmett is 0.3%, which ranks in the middle range of the companies in REITs industry. The 3-year average EBITDA growth rate is -0.3%, which ranks in the middle range 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, Douglas Emmett’s ROIC is 1.45 while its WACC came in at 5.28. The historical ROIC vs WACC comparison of Douglas Emmett is shown below:
Overall, the stock of Douglas Emmett (NYSE:DEI, 30-year Financials) is believed to be fairly valued. The company’s financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in REITs industry. To learn more about Douglas Emmett 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.