A classic value investing strategy is to buy stocks or companies that supply something growing businesses need.
Prologis (NYSE: PLD) leases warehouses and fulfillment centers to other companies. Consequently, Prologis meets one of the online retailers’ most vital needs: space to store the merchandise they ship.
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Notably, ProLogis claims to provide over 676 million square feet of industrial real estate around the world. Thus, Prologis can meet the needs of fast-growing online retailers.
Online retail is Growing Fast
Fast-growing demand from online retailers definitely exists. For example, US e-commerce sales grew from $446.811 billion in 2017 to $504.842 billion in 2018, Statista estimates. Moreover, Statista estimates US e-commerce sales will grow from $560.747 billion in 2019 to $735.358 billion in 2023.
Plus, e-commerce accounted for 14.3% of American retail sales in 2018, Internet Retailer estimates. Additionally, Internet Retailer calculates American e*commerce grew by 15% in 2018.
More merchants are going online because total US retail sales were $3.63 trillion in 2019. However, one company Amazon (NASDAQ: AMZN) accounted for 40% of US online retail sales in 2018, Internet Retailer estimates. Amazon famously operates its own fulfillment centers.
However, third-party sellers account for 53% of Amazon’s 1st Quarter 2019 sales, Statista estimates. Thus, over half of Amazon’s “sales” come from potential Prologis customers. Amazon’s 1st Quarter 2019 sales were $59.7 billion, a press release states. Therefore, Amazon’s third-party sales were $31.641 billion in 1st Quarter 2019.
Does Prologis Make Money?
Correspondingly, Prologis reports an 11.3% revenue growth rate for the quarter ending on 31 March 2019. On the other hand, Prologis reports quarterly revenues of $772.05 million on that date.
Prologis made money last quarter with a gross profit of $545.93 million, an operating income of $188.38 million, and a net income of $348.55 million. Plus Prologis generates a little cash from its operations.
To explain, Prologis had an operating cash flow of $494.61 million but a negative cash flow of -$202.36. Additionally, Prologis had an investing cash flow of $159.64 million and a negative financing cash flow of -$748.63 million.
Finally, Prologis does not have that much cash. The company had just $251.03 million in cash and short-term investments on 31 March 2019.
Is Prologis a Value Investment?
I do not consider ProLogis a value investment even though it is an even infrastructure provider. To explain, I cannot call Prologis (NYSE: PLD) a value stock because it has little cash.
Moreover, Mr. Market overpriced Prologis with a share price of $81.28 on 17 July 2019. I see nothing at Prologis worth $81.28, not even the 53₵ dividend it paid on 28 June 2019.
That dividend grew by 5₵ in 2019 rising from 48₵ on 31 December 2018 to 53₵ on 29 March 2019. Additionally, that dividend is reliable because Dividend.com estimates Prologis’s dividend has been growing for the past five years.
Is Prologis a Good Dividend Stock?
Prologis investors received a dividend yield of 2.61%, an annualized payout of $2.12, and a payout ratio of 70.4% on 17 July 2019. Thus, Prologis is a good dividend stock that appears reliable.
If you are looking for an obscure real-estate-related investment for the age of Amazon, Prologis is worth investigating. This company is in a great position to cash in on the explosive growth of online retail.
More importantly, Prologis is not sexy, not-well-known, and cheap when compared to Amazon. Notably, Mr. Market was charging $1,992.03 a share for Amazon; a stock that pays no dividend, on 17 July 2019.
Thus, I consider Prologis a good investment when you compare it to Amazon. If you are looking for a cheap and safe stock in the online retail sector — investigate Prologis. Even though Mr. Market overprices PLD it has many of the characteristics of a classic value investment.
Originally published at https://marketmadhouse.com on July 17, 2019.