Shares in Real estate investors (LON:RLE) are currently trading at 39.0p, but a key question for investors is how an uncertain economic outlook will affect the price. One way to make that assessment is to look at where his strengths lie…
the Real estate investors the share price has changed by 0.000% in the last three months. In volatile markets, many investors are eager to buy what they think are cheap stocks – but it is important to recognize the difference between a real bargain and one value trap. Often the quality stock made everything the difference.
The encouraging news is that he possesses at least some of the traits that are often associated with of them Influencing factors of investment return: high quality and one relatively cheap valuation.
To understand why this matters, here’s a closer look:
Buy quality at the right price
Good quality stocks are valued by the market because they are more likely to be strong and reliable companies. Profitability is important, but so is the financial strength of the business. A history of improving finances is essential.
One of the measures of quality for real estate investors is that they pass 5 of 9 financial tests in the Piotroski F-Score. The F-Score is a world-class accounting checklist for finding stocks with a trend of improving financial health. A good F-Score suggests that the company has strong signs of quality.
While quality is important, no one wants to pay too much for a stock, so an attractive valuation is also essential. With a weaker economy, earnings forecasts are unclear across the broader market. But there are some valuation metrics that can help, and one of them is earnings yield.
Earnings Yield compares a company’s profit to its market valuation (calculated by dividing its operating profit by its enterprise value). It gives you a total stock value (including its cash and debt), making it easy to compare different stocks. As a percentage, the higher the earnings yield, the better the stock value.
A rule of thumb for a reasonable earnings yield might be 5%, and the earnings yield for real estate investors is currently 10.5%.
In summary, good quality and relatively cheap valuations indicate which stocks are among the most attractive to contrarian value investors. It is among these stocks that we can find real valuation errors. Once the market recognizes that these quality businesses are on sale, these prices often rebound.
What does this mean for potential investors?
Finding good quality stocks at cheap prices is a strategy used by some of the most successful investors in the world. But beware: these factors do not guarantee future returns and we have identified some areas of concern among real estate investors which you can read about here.
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