With a notable daily gain of 10.18%, Extra Space Storage Inc (EXR, Financial) has caught the attention of investors. However, its 3-month gain remains almost flat at 0.01%. The company's Earnings Per Share (EPS) stand at a solid 5.44. These figures prompt an intriguing question: is Extra Space Storage modestly undervalued? To provide a well-informed answer, we delve into a comprehensive valuation analysis that promises to clarify the stock's current market standing.
Company Overview
Extra Space Storage Inc (EXR, Financial) is a real estate investment trust that has made a significant mark in the self-storage industry. Operating nearly 2,400 properties across 41 states, it boasts over 180 million net rentable square feet of storage space. The company's portfolio is a mix of wholly-owned facilities, joint ventures, and third-party managed properties. With a current share price of $129.55, Extra Space Storage has a market capitalization of $27.40 billion. Comparing this to the GF Value, which estimates fair value at $168.08, we set the stage for a deeper investigation into the company's intrinsic value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. This metric suggests that a stock's fair value is the point around which its price should gravitate. For Extra Space Storage (EXR, Financial), the GF Value indicates that the stock is modestly undervalued, suggesting a potential for higher future returns relative to its business growth. The current price of $129.55 per share, when juxtaposed with the GF Value of $168.08, supports this assessment.
Financial Strength
When evaluating investment risks, the financial strength of a company is paramount. Extra Space Storage's cash-to-debt ratio is currently 0.02, positioning it lower than 76.72% of its peers in the REITs industry. With an overall financial strength rating of 4 out of 10, the company's financial stability could be stronger, presenting a cautionary note for potential investors.
Profitability and Growth
A company's profitability and growth are critical indicators of its investment potential. Extra Space Storage has consistently shown profitability over the past decade, with an impressive operating margin of 51.14%. Over the last three years, the company's average annual revenue growth of 12.3% outperforms 86.77% of its industry counterparts, while its EBITDA growth rate of 16.9% surpasses 77.9% of REITs industry companies. These figures underscore Extra Space Storage's robust profitability and growth trajectory.
ROIC vs. WACC
An insightful way to assess a company's value creation is to compare its Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC). Extra Space Storage's ROIC over the past year stands at 7.56%, slightly below its WACC of 8.97%, indicating a challenge in generating cash flow relative to its capital costs.
Conclusion
Extra Space Storage (EXR, Financial) exhibits signs of being modestly undervalued. Although its financial condition could be stronger, the company's profitability and growth rates are compelling. These attributes, combined with the current market valuation below the GF Value, suggest that Extra Space Storage may offer a promising investment opportunity for value investors.
To gain a deeper understanding of Extra Space Storage's financials, interested parties can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
