Why has the Goodman share price tanked 14% in a month?

Goodman shares were sold off in May…

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Key points

  • Goodman shares were sold off in May and dropped 14%
  • This was despite the company upgrading its earnings guidance with its third quarter update
  • Citi believe this could be a buying opportunity for investors

The Goodman Group (ASX: GMG) share price was a positive performer on Tuesday despite the market weakness.

The integrated global integrated industrial property company’s shares rose almost 1% to $20.55.

However, this wasn’t enough to stop the Goodman share price from recording a monthly decline of over 14%.

Why did the Goodman share price tumble in May?

The weakness in the Goodman share price appears to have been driven by the prospect of interest rates rising quicker than expected. Traditionally, rising rates have caused a de-rating in the Australian real estate sector and this tradition continued in May with the S&P/ASX 200 Real Estate index falling 8.9%.

This even managed to offset the release of another strong quarterly update from Goodman, which saw the company upgrade its earnings guidance yet again.

In case you missed it, for the three months ended 31 March, Goodman reported a 3.7% increase in like-for-like net property income and a 98.7% occupancy rate.

In light of this strong form and its work in progress of $13.4 billion across 89 projects, management upgraded its earnings per share guidance from 20% to at least 23%. This is the second upgrade of FY 2022.

Goodman’s CEO, Greg Goodman, explained that business is booming and is expected to continue thanks to long-term structural drivers.

He said:

Goodman has had another strong quarter with our operating results reflecting the highly targeted location of our portfolio. This has continued to produce high occupancy, cashflows, and development activity. The business environment is changing, with increased interest rates, inflation, geopolitical risks and the ongoing impacts of the pandemic, however, the long-term structural drivers of demand have not changed.

Where next for its shares?

In response to the update, the team at Citi retained their buy rating and $29.50 price target.

Based on the current Goodman share price, this implies potential upside of 43% for investors over the next 12 months.

Citi believes that Goodman’s guidance is conservative and feels that recent weakness has created a buying opportunity. It said:

Similar to previous periods, we see FY22 guidance as conservative given strong FUM growth into 4Q22, off the back of development completions and rising asset values (as GMG’s book cap rates are softer than market). Moreover, despite fears, we see the growth outlook as being robust for FY23 as well given solid demand for industrial (which is driving market rental growth above longer-term averages) and ongoing investment demand, which should support asset value and AUM growth. We re-iterate Buy and see the -25% YTD share price decline as a good entry point.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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