The stock of Clipper Realty (NYSE:CLPR, 30-year Financials) is estimated to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $8.12 per share and the market cap of $130.4 million, Clipper Realty stock appears to be modestly undervalued. GF Value for Clipper Realty is shown in the chart below.
Because Clipper Realty is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 4.5% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Clipper Realty has a cash-to-debt ratio of 0.07, which which ranks in the middle range of the companies in REITs industry. The overall financial strength of Clipper Realty is 2 out of 10, which indicates that the financial strength of Clipper Realty is poor. This is the debt and cash of Clipper Realty over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Clipper Realty has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of $122.9 million and loss of $0.34 a share. Its operating margin is 25.48%, which ranks worse than 73% of the companies in REITs industry. Overall, the profitability of Clipper Realty is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Clipper Realty over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Clipper Realty is 4.5%, which ranks better than 73% of the companies in REITs industry. The 3-year average EBITDA growth is 2.5%, which ranks in the middle range of the companies in REITs industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Clipper Realty's return on invested capital is 2.79, and its cost of capital is 4.35. The historical ROIC vs WACC comparison of Clipper Realty is shown below:
In short, The stock of Clipper Realty (NYSE:CLPR, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in REITs industry. To learn more about Clipper Realty stock, you can check out its 30-year Financials here.
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