Standing out among the Street's worst performers today is Simon Property, a specialty real estate investment trust company whose shares slumped -5.6% to a price of $161.83, 13.92% below its average analyst target price of $188.0.
The average analyst rating for the stock is buy. SPG underperformed the S&P 500 index by -7.0% during today's afternoon session, but outpaced it by 3.3% over the last year with a return of 14.6%.
Simon Property Group, Inc. (NYSE:SPG) is a self-administered and self-managed real estate investment trust (REIT). The company is classified within the real estate sector, which includes REITs (Real Estate Investment Trusts, and real estate services and development companies. The sector’s value and performance is, for obvious reasons, strongly correlated with the value of real estate, but some real estate companies, which provide only services for example, may show some resistance to cycles within the real estate market.
Simon Property's trailing 12 month P/E ratio is 22.3, based on its trailing EPS of $7.26. The company has a forward P/E ratio of 24.0 according to its forward EPS of $6.78 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US real estate companies is 27.31, and the S&P 500 has an average of 29.3. 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.
When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Simon Property was $3.06 Billion as of its last annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, SPG is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 0.9% and has on average been $2.87 Billion.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Simon property's P/B ratio is 18.2 -- in other words, the market value of the company exceeds its book value by a factor of more than 18, so the company's assets may be overvalued compared to the average P/B ratio of the Real Estate sector, which stands at 1.94 as of the third quarter of 2024.
Simon Property is likely overvalued at today's prices because it has a Very low P/E ratio, a higher than Average P/B Ratio, and generally positive cash flows with a flat trend. The stock has poor growth indicators because of its strong operating margins with a stable trend, and a negative PEG ratio. We hope this preliminary analysis will encourage you to do your own research into SPG's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
