Initiating Coverage: SmartStop Self Storage REIT

SmartStop Self Storage REIT, Inc. has received a Buy rating, with a 1-year price target of $14.03. This target suggests a 60% potential increase, based on an in-depth analysis of the company’s financials, a comparison with industry benchmarks, and an assessment of its financial strengths and weaknesses.

The company’s reported revenue of $224.33 million over the past year is close to the industry average of $226.97 million, showing that SmartStop competes effectively in its sector. Its revenue growth, with a 100% positive rate over two years, surpasses the industry’s 92.4% average, highlighting a strong and efficient business model. The 9% revenue growth rate, exceeding the 5% industry average, indicates SmartStop’s effective market engagement.

Contrastingly, SmartStop’s net income growth has declined by 192% in the past year, a significant drop compared to the industry’s 18.3% decline. This discrepancy between revenue and profitability signals profitability as a major concern that deviates from industry norms.

SmartStop’s Self Storage Levered Free Cash Flow (LFCF) is at $73.19 million, slightly below the industry median. The company has managed a 100% positive LFCF rate in the last two years, beating the 91.9% industry average. However, the 17% decrease in LFCF over the past year, compared to an industry decline of -8.80%, indicates the need for strategic adjustments.

The balance sheet analysis shows mixed outcomes. The Altman Z Score of 0.56 suggests a higher financial distress risk than competitors. Yet, SmartStop excels in shareholder returns, with a yield of 4.6% and a buyback yield of 1.9%, above industry standards. Its debt to tangible equity ratio of 325.8% points to a greater reliance on debt, an area to watch closely.

In terms of dividends, SmartStop’s 6.6% yield is competitive but below the 7.5% index average. The dividend practices seem sustainable, as indicated by a Dividend Yield / LFCF Yield ratio of 81.1%. Despite no dividend growth over the past year, the company has maintained stability in a tough market.

Evaluating stock price factors such as Dividend Target and Dividend Multiple, and considering dividend stability, SmartStop is deemed undervalued at its current price of $9.25, relative to the $14.03 valuation. This underpricing, combined with an expected 60% total return from price appreciation and dividends, supports the Buy rating and highlights the investment opportunity based on SmartStop’s financial situation and market standing.