Why did the Goodman share price suffer a sell-off in June?

June was a difficult month for many ASX shares, including Goodman.

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Key points

  • Goodman shares have been suffering amid interest rate rises
  • The property group dropped 13% in June alone
  • The business points to tailwinds for well-located industrial properties

The Goodman Group (ASX: GMG) share price suffered a sizeable drop last month. Goodman shares fell by around 13% in June 2022.

Plenty of S&P/ASX 200 Index (ASX: XJO) shares went down last month as well. That’s why the ASX 200 fell by around 9% last month. So, there has been some underperformance in the short term.

Goodman is one of the largest property businesses on the ASX. It owns and develops industrial properties in various markets around the world.

Interest rates

A change in the interest rate can significantly impact an asset’s value. Why? Legendary investor Warren Buffett once described why interest rates are so important:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature… its intrinsic valuation is 100% sensitive to interest rates.

Central banks have been increasing interest rates to try and control elevated levels of inflation.

Last month, the Reserve Bank of Australia (RBA) decided to increase the interest rate by 50 basis points, or 0.5%. The United States Federal Reserve interest rate went up by 75 basis points, or 0.75%.

Both central banks are expected to increase the interest rate in July and in the coming months.

Broker thoughts on Goodman share price

The broker Morgan Stanley recently called Goodman Group a buy, with a price target of $23.70. That implies a possible rise of around 30%. It suggests that higher interest rates are a negative for property businesses like Goodman.

However, the broker UBS is less optimistic. It has a ‘neutral’ rating on the business, with a price target of $18.57. That’s almost exactly where the business is trading at today. However, it was noted that Goodman is looking cheaper on a price/earnings (p/e) ratio basis.

Latest business update

In May 2022, Goodman said that it’s expecting the FY22 operating earnings per security (EPS) to grow by 23%.

Goodman noted that total assets under management increased to $68.7 million at 31 March 2022. This is expected to be more than $70 billion by June 2022.

The property ASX share outlined why it’s seeing growth in demand, rental income and valuation for its real estate:

Consumers continue to seek faster and more flexible delivery. This requires intensification of warehousing in urban locations, and an increase in automation and technology to optimise delivery and improve efficiency. Our global business is concentrated in key urban locations and focused on delivering opportunities through planning, change of use, sustainability features and higher intensity use. This allows our customers to achieve greater value and enhanced productivity from the space, mitigating the higher cost.

Goodman share price snapshot

Since the beginning of 2022, the Goodman share price has fallen by around 32%.

Motley Fool contributor Tristan Harrison 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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