Lafe Corporation Limited (SGX:AYB), a SGD$22.67M 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, negative growth in the upcoming year . Today, I will analyse the industry outlook, and also determine whether Lafe is a laggard or leader relative to its real estate sector peers. View our latest analysis for Lafe

What’s the catalyst for Lafe’s sector growth?

Not every category of real estate is likely to be impacted the same by macroeconomic factors such as interest rate hikes, and not all locations are primed to grow. So, investors must remain cautiously optimistic and analyse the fundamentals of the underlying industry. In the previous year, the industry saw growth in the teens, beating the Singapore market growth of 7.92%. Lafe 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 Lafe may be trading cheaper than its peers.

Is Lafe and the sector relatively cheap?

The real estate industry is trading at a PE ratio of 11x, in-line with the Singapore stock market PE of 14x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 7.37% on equities compared to the market’s 7.94%. Since Lafe’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Lafe’s value is to assume the stock should be relatively in-line with its industry.

What this means for you:

Are you a shareholder? Lafe has been a real estate industry laggard in the past year. If your initial investment thesis is around the growth prospects of Lafe, there are other real estate companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Lafe fits into your wider portfolio and the opportunity cost of holding onto the stock.

Are you a potential investor? If Lafe 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 Lafe’s future cash flows in order to assess whether the stock is trading at a reasonable price.

For a deeper dive into Lafe’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.