Henderson Land Development Stock in Free Fall. Is There a Silver Lining?

One of Wall Street's worst performers of the day is Henderson Land Development Company, a diversified real estate company whose shares have slumped -3.3% to a price of $3.27, not far from its average analyst target price of $3.19. The average analyst rating for the stock is underperform. HLDCY lagged the S&P 500 index by -2.7% so far today and by -10.5% over the last year, returning -23.7%.

Henderson is part of the real estate sector, which is mostly composed of REITs (Real Estate Investment Trusts). But there are a few real estate development and service companies included in the sector as well. While the value of REIT tracks the value of underlying investments in real property, the value of shares in real estate companies depends not only on the economic factors affecting the real estate market generally, but also investor perceptions regarding the future of the company.

As of the second quarter of 2022, the average Price to Earnings (P/E) ratio for US real estate companies is 20.05, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (Eps), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

Henderson's trailing 12 month P/E ratio is 9.3, based on its trailing Eps of $0.35. The company has a forward P/E ratio of 7.3 according to its forward Eps of $0.45 -- which is an estimate of what its earnings will look like in the next quarter.

Studying a company's earnings can give investors much more than just insight into its stock's valuation. By looking at earnings growth over time and comparing it to revenue growth, we can see the evolution of the company's profit margins, which we can then use to make inferences about the company's competitive advantage in its market.

Henderson's year on year (YOY) quarterly earnings decreased at a rate of -27.0% while its YOY quarterly revenue grew at a rate of 8.1%. Since earnings are growing at a slower rate than revenue, the company's profit margins are shrinking as a result of increases in the their tax liabilities, decreasing product prices, an increase in overhead, or a rise of the cost of goods sold.

Unlike earnings, gross profits are the company's revenue minus the cost of goods only, and don't take into account taxes and overhead. Analyzing gross profit margins as opposed to net (operating) margins gives a better picture of the company's pure profit potential and pricing power in its market, unclouded by other factors. As such, it can provide insights into the company's competitive advantages -- or lack therefor. HLDCY has gross profit margins of 50.1%, which indicates that it potentially benefits from a sustained competitive advantage over its peers, allowing it to maintain highly profitable pricing structures.

Since it has a very low P/E ratio, excellent profit margins, an analyst consensus of some upside potential, and weak cash flows, Henderson land development co is likely fairly valued at today's prices. We hope you enjoyed this overview of HLDCY's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

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The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.