Yahoo Finance Brookfield Property REIT Stock Appears To Be Possible Value Trap
- By GF Value
The stock of Brookfield Property REIT (NAS:BPYU, 30-year Financials) is believed to be possible value trap, 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 $17.81 per share and the market cap of $684.6 million, Brookfield Property REIT stock is believed to be possible value trap. GF Value for Brookfield Property REIT is shown in the chart below.
The reason we think that Brookfield Property REIT stock might be a value trap is because Brookfield Property REIT has an Altman Z-score of -0.23, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Brookfield Property REIT has a cash-to-debt ratio of 0.01, which is worse than 89% of the companies in REITs industry. GuruFocus ranks the overall financial strength of Brookfield Property REIT at 2 out of 10, which indicates that the financial strength of Brookfield Property REIT is poor. This is the debt and cash of Brookfield Property REIT over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Brookfield Property REIT has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $1.5 billion and loss of $6.721 a share. Its operating margin is 14.10%, which ranks worse than 83% of the companies in REITs industry. Overall, GuruFocus ranks the profitability of Brookfield Property REIT at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Brookfield Property REIT 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 Brookfield Property REIT is 151.5%, which ranks better than 98% of the companies in REITs industry. The 3-year average EBITDA growth rate is 116.1%, which ranks better than 98% of the companies in REITs industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Brookfield Property REIT's return on invested capital is 0.95, and its cost of capital is 4.28. The historical ROIC vs WACC comparison of Brookfield Property REIT is shown below:
In closing, The stock of Brookfield Property REIT (NAS:BPYU, 30-year Financials) is believed to be possible value trap. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 98% of the companies in REITs industry. To learn more about Brookfield Property REIT stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.