Everyone should be looking to add STAG to their portfolio. This is because of the massive economic potential in this REIT.
This post goes over the fundamentals, technicals, and presents an investment thesis on why STAG is set to make investors rich.
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Without further ado, let’s jump right in.
The fundamentals section of STAG outlines the business model, growth plan, finances, and risks to investing. The goal is to present the company in an easily approachable manner and explain why this REIT is so unique.
To accomplish this I have put a summary section at the end of each of the sub-sections. If you are strapped for time go ahead and skip to the end of each section where I outline the main points.
Stag Industries is a Real Estate Investment Trust (REIT) business that focuses all of their efforts on buying, owning, and leasing Warehouse/Distribution centers across the United States.
This is an incredibly profitable business model because owning warehouse space has an incredibly low overhead while also having huge economic potential.
This is because of the lease arraignments between STAG and their single tenants. STAG will seek to take a flat rent rate as well as a portion of the revenue of the tenant using the warehouse. That means that as warehouse/distribution centers become more profitable then STAG will continue to generate more and more wealth.
Because warehouses need so little overhead STAG’s overhead is so small. Warehouses typically only need to be maintained to protect and house the product inside. There is no costly expenditures that typically plague other REITS such as evictions, painting, repairs, etc.
Because of this STAG has market cap of 6.36 billion while only having 78 employees on payroll! What the hell…talk about a good business model.
Largest customers and their sectors
Within the business plan the top 5 largest customers are as follows.
- Amazon (3.8%)-https://www.amazon.com
- XPO logistics (1.3%)- https://www.xpo.com
- Eastern Metal Supply (1.1%)-https://www.easternmetal.com
- FedEx Corp (1.0%)-https://www.fedex.com
- American Tire Distributors (0.9%)-https://www.atd-us.com
STAG has been very careful to not give one customer to much of their revenue portfolio. If Amazon for example represented 5-10% of STAG’s revenue then Amazon could in theory argue for a lower rent price.
Obviously STAG does not want this. Further, by diversifying their customer portfolio they are more exposed to sector trends at large. Which are easier to both hedge against and profit from.
Speaking of sectors. Here are the largest sectors that STAG is exposed to by percentage of their warehouse centers.
- Auto components (12.4%)
- Air freight (8.5%)
- Containers and packaging (7.1%)
- Commercial services (5.1%)
- Internet and direct retail (5.1%)
Essentially STAG has positioned their portfolio to profit immensely from the consumer economy in the United States. They have strategically bought and leased warehouses in a manner that reduces their risk while also maximizing their economic potential.
The growth plan for STAG is to find properties that they can buy in areas where their are no other industrial REIT’s present.
This is because they take advantage of discrepancies between an individual sellers knowledge of the expanding sector and their own. By leveraging their sector knowledge and research they buy up warehouses in expanding industrial markets.
These markets are both expanding in population along with expansion in industrials. For example in Florida one of their biggest warehouses is located in Orlando. Orlando is exploding in population and new industrial jobs. Stag has successfully positioned themselves to capitalize upon this across the United States.
Further, by spreading out their warehouses across the United States STAG hedges against their risks. STAG does not put all of their eggs in the same geographic basket and instead spreads out all of their warehouses (eggs) across the United States. Thus spreading out their risk.
So the growth plan and business model are solid. These however wont make a company successful. A good company needs to demonstrate a solid cash flow to accomplish their plans for growth/world domination!
A good business model and growth strategy is nothing without the capital to turn a vision into reality.
Since 2017 STAG industries has taken off in profitability. This is amazing since the company has such a low overhead. It only has to pay for warehouse repair, which is minimal, and the salary on its 78 employees.
This type of company finances is exactly what you want to see in a company. There is solid net income, controlled and predictable expenses, and a exponentially growing revenue.
This is absolutely astounding for a REIT company. It appears that STAG in 2015 created a snowball centered around e-commerce and now it is finally starting to cascade out of control, but in a good way for STAG’s revenue.
Because of these finances the growth plan is easily accomplishable and we could see STAG start to grow out of control. First across the United States and then expanding out into other countries.
Typically U.S REITS don’t beat average market returns (S&P 500). This is just a sacrifice investors are willing to make due to stability of certain REITS.
I need to make it clear that STAG is one of the few REITS out there that have consistently beat market returns. This is slotted to only continue in the future.
So STAG is a good investment currently. Lets look at what could impact it in the future to drive the price down…im talking about the risks.
Risks to STAG
The risks to STAG revolve around two major variables; geographic location of their warehouses, and the overall e-commerce sector.
Geogrpahic location of Warehouses
Even though STAG has successfully spread out the geographic locations of their industrial properties they are still at risk of a large sweeping reforms to the entire sector across the United States.
This could take the form of legislation putting excess tax on industrial properties at large. This would severally impact operating overhead for STAG if they had to pay a higher tax on their land.
To combat this STAG could start to expand into other countries to diversify their industrial portfolio. I believe that this is a great move for the REIT company should they be able to navigate the tricky international real estate market successfully.
My personal bet is that in the next decade STAG expands into either South Korea or Japan for Asia, Britain/Germany for the EU, and Mexico for Latin America/South America (possibly Colombia/Peru).
The chances of legislation impacting STAG anytime soon are slim currently but you never know. In the future the U.S could decide to levy a higher tax on industrial property owners to extract surplus wealth.
That would directly hit STAG’s price.
The overall e-commerce sector
So its no secret that the success for STAG is largely due to the explosion in e-commerce businesses across the United States.
The largest e-commerce business currently is the goliath Amazon inc. AMZN is so large in fact that it has started to garnish a negative reputation among the voting population of the United States for near monopolistic practices.
This could lead to a shift away from e-commerce or legislation taxing the overall sector. Any slow to the e-commerce sector will massively impact STAG as so much of their business relies up the sector.
This is by far the largest risk to investing in STAG industries. To hedge against this STAG has started to invest into other industrial properties outside warehouses such as factories.
This is still a new development but I believe this is the best approach that STAG can do to combat this risk.
However, e-commerce is here to stay. As such I don’t think that any investor needs to worry about this risk. The consumer market of the United States has fully adapted to online shopping and nothing would piss of the average U.S citizen then not being able to get their 2 day shipping on that new hair brush.
As such don’t worry about the e-commerce sector at large disappearing at any point in the near future. I just wouldn’t be doing my job by avoiding the elephant sized risk in the room. Right now that elephant is tranquilized and drooling on the floor, but you never know it could wake up and go on a rampage.
Summary of Fundamentals
STAG is a solid company.
The business model is conservative and spreads out risk.
STAG’s growth strategy is achievable and proven to work.
The finances of STAG are absolutely astounding. Seriously they beat the S&P 500 over the past 5 years.
Their risks are manageable and are actively being hedged against internally.
Technicals of STAG
This section goes over the volume, P/E, EPS, and float/short percentage.
The goal of this section is to give you a snapshot of how STAG’s stock has performed, what are the limitations, and what is a good entrance price currently on the ticker.
As usual their is a summary at the end for those strapped on time.
The above image is the daily chart on STAG going back a year. That’s some good capital appreciation of an average 18% increase in stock price over the course of the year. (along with the dividend payment)
Average daily volume.
The average daily volume ranges between 500,000-800,000 shares. On a large movement you can expect share volume in the range of 1,000,000 shares but those are outliers.
As such, by following the golden 10% rule, your maximum investment size for liquidity reasons is $2,596,000.
((500,000+800,000) * 10%) * “current share price” = $2,596,000
This is the maximum investment that you should take out. This means that extremely large funds will have a hard time taking a position in STAG currently due to liquidity reasons. (they wont be able to exit quickly else they would tank the stock)
Because of this the floor (class A common shares) is open to retail investors. Good news!
The P/E on STAG is currently 39.05.
This is unusually high for a REIT company but I believe it is ok because of the overall sector that STAG is engaged in… e-commerce.
A high P/E (price to earnings) means that investors are willing to pay a higher price for a stock in relation to the companies earnings. A high P/E indicates that the investors at large are bullish on the stock and are willing to pay a premium to enter the stock.
It also indicates overvaluation based off current traditional valuation metrics. This is always a concerning sign for a newish investor, but since STAG has such a strong revenue growth then chances are it will continue to have a high P/E until something drastic changes. (see risks section)
Overall P/E on STAG shows bullish market sentiment. Further good news as it means were on the right track!
EPS or Earnings Per Shares.
Currently the EPS on STAG is 1.03. This is a good sign as that means that STAG’s stock price is near its book value.
EPS differs from P/E in one pivotal way. P/E is the price of the stock to the companies earnings. Its a way to see if valuation of stock price is near where earnings should put it. Its a way to gauge both an overvalued stock and overall market sentiment.
EPS on the other hand is the literal floor of the company shares price. A higher EPS means that the company is profitable when compared to their theoretical stock price floor.
For example GME, a super hyped company has a EPS of -1.78. This means that the companies share price is extremely overvalued in relation to its stock’s floor price.
STAG on the other hand is at 1.03 meaning its near the baseline valuation of its stock price based off net income.
EPS is simply put as follows.
Earnings/amount of shares.
So if earnings explodes then in theory the floor of the stock’s price should increase.
Good news then! A EPS of 1.08 is a great sign.
The float/short percentage is to gauge how volatile STAG is. Think of it as your personal stress-o-meter!
As we can see the float of STAG is about 150 million. At the current price this indicates that STAG has normal volatility in the market.
Float is the amount of shares that can float between retail investors on the open market. A low float means there is less shares available to the average investor, which means that high volume in relation to the short will cause the stock to explode.
Because the average volume for STAG is around 1 million and the float is 150 million STAG more then likely wont see any huge explosions. No pump and dumps here.
The short percentage of this float is only 5% which is high for a REIT. Chances are that a majority of this short percentage is a hedge for another position.
Since the short percentage is small there is no potential for a short squeeze here. To understand how shorting works check out the post on shorting for dummies!
Both the float and short percentage in STAG are fine. This is a conservative stock with low volatility. It would take a massive increase in volume to move this stock. REITS typically don’t have big catalysts to move the stock so were fine here.
The dividend yield on STAG is 3.61% paid out monthly.
This is small for a REIT but that’s perfect since STAG’s stock price grows so much. Think of the dividend as a monthly bonus check and not the main reason to invest.
The monthly pay out is great. Put that bad boy into a DRIP account (Dividend Re-Investment Policy) and watch your STAG investment generate more STAG shares! For a full rundown on DRIP see the following post.
Summary of Technicals
STAG’s stock is built as a conservative growing stock.
Its volume is steady, the P/E indicates a bullish sentiment, the EPS indicates the stocks valuation is ok, and their is no potential for huge volatility increases.
Further the entire you are benefiting from STAG’s price increase you will also be gaining a nice monthly dividend of 3.61%.
This is another great sign for investing in STAG!
A good entrance point would be in the mid $30’s range or $37 currently.
Ok, now that we know what STAG is and can see its stock is a stable growing platform for wealth generation now its time to present the cherry on top of the cake…. I’m talking about the investment thesis. Or why STAG is going to increase in value.
This is a simple thesis that revolves around two major points that are highlighted below.
- Growth in the E-generation of the U.S population
- Growth of e-commerce
Let’s jump into each of these.
Growth of the E-Generation of the U.S Population
Every year more and more people are coming of age in the United States and entering into the work force.
This work force is increasingly generating discretionary wealth that they will want to spend.
The trick to this is tracking and predicting this population growth in STAG’s primary market, the consumption market of the United States.
For example 12% of STAG’s revenue generation portfolio comes from autoparts e-commerce stores. The growing population in the United States is going to need access to transportation, which in the United States, takes the form of cars.
These cars need to be constantly repaired and maintained. In steps STAG who is providing the distribution centers for major online autoparts retailers.
As we can see over the next 10 years we will have close to 20 million more kids on the roads. They will need cars to get around and will have to maintain these cars with autoparts.
This is just one sector that STAG is associated with. You an apply this methodology to every sector STAG is associated with. All results are the same, that STAG is going to explode as the U.S consuming population grows.
This leads into the next part of the investment thesis.
Growth of E-Commerce
Its no secret that e-commerce has exploded over the past decade. The above image from U.SCensus.gov demonstrates that the overall sector has increased by almost 300% in one decade!
Amazon is a great example of this growth. STAG is no different.
This trend will continue on for the foreseeable future as more and more people start to use online shopping as a way to easily get the products they want.
So long as people continue to buy online, which will be forever at this rate, then STAG will continue to generate increasing revenue and thus a higher payout for its investors.
Because of STAG’s amazing financial situation they stand to capitalize upon this trends and start investing/paying down debt over the next couple years. This will give STAG the necessary amount of capital to expand at an alarming rate.
Previously I stated STAG would stand a good chance at expanding overseas. If their q2 financial for 2021 report is good I could see STAG starting to look overseas for future investment opportunities.
This is a huge opportunity for both investors and STAG as a whole. Now is the prime time to get in on the action and ‘ride the lighting’ up to riches.
STAG is poised to make everyone who buys in filthy rich!
Investing in STAG right now is a great idea. The stocks fundamentals are great, the technicals are solid as a rock, and STAG is poised to explode in price in the foreseeable future.
Overall its a great opportunity to buy not only a monthly dividend generating asset but also get in on some capital appreciation in the future. Skies are clear and we have a smooth sea to set sail to riches on.
As always if you like content like this then you should share on social media and subscribe to the newsletter! Every share on social media helps me help others. Be sure to check out our other research posts as well!
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Until we meet again, best of luck in your investing journey.