Airport City (TASE:ARPT) Just Gave Investors Something To Think About

Airport City (TASE:ARPT) has drawn fresh attention after its latest earnings release. Second quarter figures showed higher sales and net income, while first half numbers pointed to softer revenue and profit compared with last year.

The recent earnings announcement appears to have coincided with a short burst of optimism, with Airport City posting a 1-day share price return of 0.56% and a 7-day share price return of 6.93%. However, the year-to-date share price return is down 10.11% and the 1-year total shareholder return is down 7.26%, suggesting only tentative momentum after a weaker stretch for investors.

Spot more real estate stocks showing mixed momentum like Airport City by scanning our hand picked 616 high quality undiscovered gems that could be slipping under the market's radar.

Given Airport City now trades at a discount to one estimate of fair value after a quick rebound, the issue is whether that gap reflects opportunity or a market that remains wary for good reason before the valuation numbers are unpacked.

Price-to-Earnings of 8.2x: Is it justified?

Airport City currently trades on a P/E of 8.2x, which, alongside the recent move in the share price, points to a valuation that looks lower than both its real estate peers and the wider Israeli market.

The P/E ratio compares the share price to earnings per share and gives you a quick sense of how much investors are paying for each unit of profit. For a real estate group like Airport City, which earns income from leasing and development activities in Israel and Europe, this is a commonly watched yardstick because earnings are a direct outcome of rent levels, occupancy, and project delivery.

Here, the P/E of 8.2x sits against an industry average of 14.3x and a peer average of 14x. That is a wide gap. Airport City reported earnings growth of 27.2% over the last year, compared with a 2.6% decline for the wider Israeli real estate industry. The current market pricing suggests investors are giving limited credit for that recent improvement. It is also worth noting that earnings over the past 12 months include a ₪445.0m one off gain, which affects reported profit quality and can make the P/E look lower than it might under more normal conditions.

The discount to peers is therefore clear. ARPT is described as trading on a lower P/E both versus the broader Israeli real estate industry and versus its closer peer set. Investors weighing this need to balance the stronger recent earnings trend, the one off items in the latest figures, and the fact that long term earnings have declined by 15.5% per year over the past five years, all while the stock has lagged the industry return over the last year.

See what the numbers say about this price — find out in our valuation breakdown..

Result: Price-to-Earnings of 8.2x

However, investors still need to weigh the long term share price underperformance and the impact of one off gains on the quality of Airport City’s reported earnings.

Find out about the key risks to this Airport City narrative.

Another View On Airport City Using DCF

The P/E story suggests Airport City looks inexpensive, and the SWS DCF model points in a similar direction. With the share price at ₪57.26 and an estimated future cash flow value of ₪66.57, the stock is described as trading about 14% below that DCF estimate. This raises the question of whether this reflects a potential mispricing or indicates that the cash flow assumptions may be too optimistic.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Airport City 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 258 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

The mix of concern and optimism around Airport City is clear, so it makes sense to review the numbers yourself and move quickly to shape your own view. Start by weighing the 2 key rewards and 3 important warning signs

Looking for more investment ideas beyond Airport City?

If you stop with Airport City, you could miss other opportunities that fit your style. Use the screener to quickly filter for stocks that match your priorities.

• Target resilient balance sheets and steady fundamentals with a focused list of solid balance sheet and fundamentals (439 results) tailored for investors who care about financial strength first.
• Hunt for quality at a discount by scanning a curated 258 high quality undervalued stocks that might offer more compelling pricing than headline stocks.
• Prioritise stability and capital protection by reviewing a hand picked 306 resilient stocks with low risk scores that keeps risk scores front and centre.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com