Piedmont Office Realty Trust Stock Gives Every Indication Of Being Modestly Undervalued
- By GF Value
The stock of Piedmont Office Realty Trust (NYSE:PDM, 30-year Financials) is believed to be modestly undervalued, 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 $17.8 per share and the market cap of $2.2 billion, Piedmont Office Realty Trust stock is believed to be modestly undervalued. GF Value for Piedmont Office Realty Trust is shown in the chart below.
Because Piedmont Office Realty Trust is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 2.4% over the past five years.
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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. Piedmont Office Realty Trust has a cash-to-debt ratio of 0.01, which which ranks worse than 89% of the companies in REITs industry. The overall financial strength of Piedmont Office Realty Trust is 3 out of 10, which indicates that the financial strength of Piedmont Office Realty Trust is poor. This is the debt and cash of Piedmont Office Realty Trust 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. Piedmont Office Realty Trust has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $535 million and earnings of $1.84 a share. Its operating margin is 16.59%, which ranks worse than 80% of the companies in REITs industry. Overall, the profitability of Piedmont Office Realty Trust is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Piedmont Office Realty Trust 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 Piedmont Office Realty Trust is 2.4%, which ranks in the middle range of the companies in REITs industry. The 3-year average EBITDA growth rate is 12.7%, which ranks better than 82% 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, Piedmont Office Realty Trust's return on invested capital is 2.46, and its cost of capital is 6.17. The historical ROIC vs WACC comparison of Piedmont Office Realty Trust is shown below:
To conclude, the stock of Piedmont Office Realty Trust (NYSE:PDM, 30-year Financials) gives every indication of being modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 82% of the companies in REITs industry. To learn more about Piedmont Office Realty Trust stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
