First quarter earnings move Alexander's stock into focus

Alexander's (ALX) drew fresh attention after first quarter results showed sales of US$53.41 million and net income of US$4.66 million, both below the prior year’s levels.

The first quarter earnings setback has coincided with weaker short term momentum, with the share price down 6.55% over the past week and 5.87% over the past month. However, the 1 year total shareholder return of 11.85% and 3 year total shareholder return of 82.38% show that long term holders have still seen strong gains overall.

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With earnings under pressure, short term price weakness and the stock trading at a premium to the latest analyst target, the key question is whether Alexander's is now mispriced or if the market is already accounting for future growth.

Price-to-Earnings of 57.1x: Is it justified?

Alexander's closed at $229.88 while trading on a P/E of 57.1x, and that sits well above both its own estimated fair P/E and sector peers.

The P/E multiple compares the share price to earnings per share and, for a REIT like Alexander's, it reflects what investors are willing to pay for each dollar of current profit.

In this case, Alexander's is described as expensive on several fronts. The current P/E of 57.1x is higher than the estimated fair P/E of 37.7x that our fair ratio work points to, and it is also higher than the peer average of 16.9x and the broader US Retail REITs industry average of 23.9x. That suggests the market is putting a far richer price on Alexander's earnings than it does on similar companies, and the gap to the fair ratio highlights how far sentiment could shift if pricing moved closer to that benchmark.

Result: Price-to-Earnings of 57.1x (OVERVALUED)

However, if earnings pressure persists or the stock continues to trade well above the US$190 analyst target, sentiment could quickly shift against the current premium.

Another view using our DCF model

Our DCF model points to a future cash flow value of $173.63 per share, which sits below the current $229.88 price and also below the US$190 analyst target. The 57.1x P/E already looked rich, and the cash flow view also leans toward overvaluation. It is up to you to decide which signal matters more.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Alexander's for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 50 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With mixed signals across earnings, valuation and sentiment, this is the moment to look under the hood yourself and decide how comfortable you are with the trade off between risk and potential reward. To weigh those signals properly, start by checking the 1 key reward and 3 important warning signs

Looking for more investment ideas?

If Alexander's has sharpened your focus on valuation and quality, do not stop here. Broaden your watchlist so you are not reliant on a single story.

• Target resilient potential by scanning 66 resilient stocks with low risk scores that may help balance out more volatile positions in your portfolio.
• Hunt for value opportunities using the 50 high quality undervalued stocks that filters for companies combining quality fundamentals with attractive pricing.
• Spot early opportunities with the 25 elite penny stocks with strong financials that surface smaller stocks meeting strict financial criteria before they gain wider attention.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.