Is the Stockland share price undervalued?

Amid the housing slowdown, the Stockland Corporation Ltd (ASX: SGP) share price has increased by almost 10% in the last three weeks.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Amid the housing slowdown, the Stockland Corporation Ltd (ASX: SGP) share price has increased by almost 10% in the last three weeks.

Stockland, one of the largest real estate groups in Australia, is in the process of divesting assets to release capital for reinvestment and reshaping its commercial property portfolio.

Recent transactions that took place in the last six months include the sale of Stockland Bathurst Shopping Centre and Stockland South in Caloundra for $113 million and sale of The Grove residential development for $202.5 million.

According to the Managing Director and CEO, Mark Steinert, the proceeds of the sale will strengthen Stockland's balance sheet, enhance workplace and logistics development, and provide funds for securities buyback to allow the company to capitalise on counter-cyclical residential opportunities.

Is management hinting the Stockland share price is undervalued?

Since announcing the intention to buy back shares, Stockland has been actively executing its $350 million shares buyback initiative over the last few months.

Share buybacks can benefit shareholders who hold on to the shares because it increases their percentage of ownership and share prices.

A big fan of share buybacks is none other than Warren Buffett. He believes that the best use of cash is to buy back shares when they are below the business's value.

Based on the current Stockland share price, it is trading at 0.9 times to book value. Most investors believe that a price to book ratio below one indicates that the shares may be undervalued.

Furthermore, Stockland seems fairly valued with a forward price to earnings at 10.4 times as compared to its 5-year average of 14.6 times.

Foolish Takeaway

Stockland has been a consistent dividend paying machine for the last 15 years. It currently has a forward dividend yield of around 7% with the next payment of $0.135 due on 28 February 2019.

I think owning Stockland shares now is a great opportunity for investors who want to put their foot in real estate but find it too capital intensive to own physical properties.

Coupled with Stockland's current PB at 0.9 and its share buyback initiative, I believe it will bode well for investors who plan to own Stockland shares for the long term.

For investors who wish to own shopping centres, it may be worth checking out Scentre Group (ASX: SCG) or Vicinity Centres Re Ltd (ASX: VCX).

Motley Fool contributor Ivan Loh has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. 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.

More on Share Market News

Investor sitting in front of multiple screens watching share prices
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave the thumbs up to these ASX shares last week. Why are they bullish?

Read more »

Jessica Amir
Investing Strategies

6 ASX shares to buy and hold until the next leap year

These are the stocks to store in the portfolio until the next February 29 rolls around in 2028, according to…

Read more »

A woman ponders a question as she puts money into a piggy bank with a model plane and suitcase nearby.
Share Market News

If I invest $10,000 in Qantas shares, how much passive income will I receive in 2024?

Here's what analysts are predicting from the airline operator.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Broker Notes

These ASX 200 shares could rise 20% to 50%

Big returns could be on the cards according to analysts.

Read more »

Modern accountant woman in a light business suit in modern green office with documents and laptop.
Value Investing

Looking for ASX value shares? Here's 1 I'd buy and 1 I'd avoid!

It's not an easy exercise to identify which stocks are undervalued and which ones are simply terrible. Here's an example…

Read more »

A young girl looks up and balances a pencil on her nose, while thinking about a decision she has to make.

Will I be buying Zip shares now the company has turned a profit?

Is now the right time to buy this BNPL stock -- or not?

Read more »

a man with hands in pockets and a serious look on his face stares out of an office window onto a landscape of highrise office buildings in an urban landscape

1 ASX dividend stock down 55% to buy right now

Here's why I think this beaten-up stock could be an opportunity.

Read more »

Three analysts look at tech options on a wall screen
Share Market News

Here's how the ASX 200 market sectors stacked up this week

ASX tech shares are on fire, leading the 11 market sectors for a third consecutive week.

Read more »