The Stockland Corporation Ltd (ASX: SGP) share price has slumped 41.34% lower in 2020 and is underperforming the S&P/ASX 200 Index (ASX: XJO) – but is it in the buy zone yet?
Why the Stockland share price has been hammered
Let’s start with what Stockland actually does. The group is a real estate investment trust (REIT) that invests in a large portfolio of commercial and residential property. In fact, Stockland’s portfolio spans residential, retail, workplace and logistics, and retirement living villages.
On the surface, the Stockland share price looks to be a bargain. A diversified real estate manager with $7 billion in assets that are trading 40% lower this year – what’s not to like?
But these aren’t normal times and investors have been spooked. Specifically, it’s quite hard to value real estate assets right now. COVID-19 restrictions have reduced demand in the retail and office sectors. That could mean fewer tenants and/or lower rent in the future which lowers asset values.
These valuation questions and hit to earnings have rocked the Stockland share price hard this year. But, state and federal governments are slowly easing restrictions, so could Stockland be undervalued right now?
Is now a good time to buy the ASX REIT?
Now, just because an ASX share has fallen lower does not necessarily make it a buy. On the other hand, a long-term investor should be able to see through the day-to-day or month-to-month noise.
The real question is whether or not the Stockland share price is appropriately valued. Do the current conditions make the Aussie REIT worth less in the future? My answer is probably.
It’s true that rents will take a long time to recover. There’s pressure right across the economy, including residential real estate with high unemployment testing asset quality.
On the other hand, I think the Stockland share price will bounce back. Stockland is a strong ASX dividend share that is currently yielding 10.17%. Of course, this may well be slashed due to soft earnings and being artificially high from the share price declines. However, I believe we’ll see more shoppers back in retail centres and continued demand for real estate assets.
So, while the Stockland share price may be worth less, I don’t think it’s worth 40% less. That means the current $2.71 per share valuation could be a steal if you’re investing for the long-term.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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