Orbit Corporation Limited (NSEI:ORBITCORP), a INR₹181.20M small-cap, operates in the real estate industry which displays attractive investment characteristics relative to other sectors, especially over time. Real estate analysts are forecasting for the entire industry, a positive double-digit growth of 11.40% in the upcoming year , and a robust short-term growth of 17.27% over the next couple of years. This rate is larger than the growth rate of the Indian stock market as a whole. Today, I will analyse the industry outlook, and also determine whether Orbit is a laggard or leader relative to its real estate sector peers. See our latest analysis for Orbit
What’s the catalyst for Orbit’s sector growth?
Over the past couple of years, as yields for high quality real estate investments have become under pressure, investors have swung towards more niche and diversified buildings such as medical offices, student housing and data storage facilities. Over the past year, the industry saw growth in the teens, beating the Indian market growth of 12.84%. Orbit lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Orbit may be trading cheaper than its peers.
Is Orbit and the sector relatively cheap?
The real estate sector’s PE is currently hovering around 27x, in-line with the Indian stock market PE of 28x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 4.62% compared to the market’s 9.83%, potentially indicative of past headwinds. Since Orbit’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Orbit’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Orbit has been a real estate industry laggard in the past year. If your initial investment thesis is around the growth prospects of Orbit, there are other real estate companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Orbit fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Orbit has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its real estate peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Orbit’s future cash flows in order to assess whether the stock is trading at a reasonable price.