Rental home company American Homes 4 Rent (AMH) in Malibu, Calif., recently announced that it commenced an underwritten public offering of 20 million of its Class A common shares at $0.01 per share. It intends to use the net proceeds to repay its current outstanding debt, or new debt it expects to take on under its revolving credit facility, and for other general corporate purposes.                                            

The stock has declined 13.6% in price over the past month and 11.9% over the past six months and is currently trading 15.8% below its 52-week high of $44.07, which it hit on Dec. 31, 2021. 

Furthermore, the effects of the COVID-19 omicron variant and climatic and socio-political issues make its near-term prospects uncertain.

Here is what could shape AMH’s performance in the coming months:

Solid Financials

For the fiscal second quarter, ended Sept. 30, 2021, AMH’s rent and other single-family property revenues surged 10.3% year-over-year to $339.60 million. The company’s net income grew 20.8% year-over-year to $48.50 million, while its EPS came in at $0.11, representing a 57.1% year-over-year increase. Also, its total assets came in at $10.51 billion for the period ended Sept. 30, 2021, versus $9.59 billion for the period ended Dec. 31, 2020.

Favorable Analyst Estimates

For its fiscal year 2022, analysts expect AMH’s EPS and revenue to grow 16.7% and 11.5%, respectively, year-over-year to $0.42 and $1.46 billion. In addition, its EPS is expected to grow at 28.5% per annum over the next five years. Moreover, Wall Street analysts expect the stock to hit $46.29 in price in the near term, indicating a potential 24.70% upside.

Low Profitability

In terms of trailing-12-month CAPEX/Sales, AMH’s 1.80% is 48.3% lower than the 3.48% industry average. Likewise, its trailing-12-month ROCE of 1.95% is 52.3% lower than the 4.09% industry average. Furthermore, the stock’s trailing-12-month levered FCF margin and gross profit margin of 24.38% and 54.12%, respectively, are lower than the 37.27% and 66.19% industry averages.

Stretched Valuation

In terms of trailing-12-month P/S, AMH’s 9.52x is 50.3% higher than the 6.34x industry average.  Likewise, its 64,87x trailing-12-month EV/EBIT is 43.1% higher than the 45.33x industry average. Also, the stock’s 24.25x and 27.84x respective trailing-12-month P/CF and EV/EBITDA are higher than the 17.40x and 22.66x industry averages.

POWR Ratings Don’t Indicate Enough Upside

AMH has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AMH has a D grade for Value, which is in sync with its higher-than-industry valuation ratios.

In addition, the stock has a D grade for Quality, which is in sync with its lower-than-industry profitability ratios.

AMH is ranked #15 of 25 stocks in the D-rated REITs – Residential industry. Click here to access AMH’s ratings for Growth, Stability, Sentiment, and Momentum as well.

Bottom Line

AMH is currently trading below its 50-day and 200-day moving averages of $41.27 and $39.87, respectively, indicating a downtrend. So, we think the stock looks overvalued at its current price level, and it could be wise to wait for a better entry point.

How Does American Homes (AMH) Stack Up Against its Peers?

While AMH has an overall POWR Rating of C, you might want to consider investing in the following REITs – Residential stocks with a B (Buy) rating: Preferred Apartment Communities, Inc. (APTS) and BRT Apartments Corp. (BRT).

Want More Great Investing Ideas?

3 Stocks to DOUBLE This Year

2022 Stock Market Outlook

Top 10 Stocks for 2022

9 “Must Own” Growth Stocks