The real estate industry has gone through several ups and downs over the last year. While some young adults have had to move in with their parents to save money, other people have decided to purchase larger properties for investment purposes to take advantage of low interest rates.
Predicting how local, regional, and national real estate markets will respond to evolving pressures and opportunities is Prologis (PLD), who could benefit from this situation. But is Prologis stock a buy? That depends on how you expect the real estate industry to change over the next few decades.
Prologis Invests In Industrial & Warehouse Buildings
Prologis is an American real estate investment trust that focuses on global supply chains. In other words, it invests in industrial and warehousing facilities that companies can use to make their supply chains more efficient. Prologis also invests in large retail properties, such as malls and shopping centers.
Prologis has made itself essential to companies by purchasing warehousing space near urban areas.
Many companies avoid buying large plots of land near cities because of the high price. Evaluating the needs of global companies, however, has made it possible for Prologis to choose areas that clients need.
Without convenient warehousing, businesses would need to spend more money shipping a constant supply of products and materials to stores. By aligning themselves with Prologis, companies can keep inventory near major cities, which helps maintain a consistent supply to a large number of consumers.
Other revenue sources for Prologis include:
- Built-to-suit developments
- Sustainable developments
- Rooftop advertising
- Leasing properties
Prologis is a world leader in property acquisitions and development. As the company continues to grow, it accumulates more influence over supply chains.
Companies that choose to work with Prologis, for example, can maintain long-term relationships that give them access to warehouses around the world.
Is Prologis Stock a Buy?
It seems likely that Prologis will continue to grow and flourish. The company has taken an aggressive stance by publishing reports on the COVID-19 pandemic’s impact on industrial organizations.
The special reports show that Prologis takes its position as a leader seriously. It understands the challenges ahead and plans to meet them head-on.
Prologis earnings are set to grow next year which could translate to some strong tailwinds for PLD share price.
In a post-covid world, Prologis has set itself apart with top tier clients ranging from FedEx to Home Depot. By controlling warehouses in client supply chains, Prologis can support the trend of faster shipping and even same-day shipping that is increasingly valuable to customers.
Even companies like Amazon.com are part of the Prologis network and as ecommerce grows, PLD is tethered intrinsically to their growth and can benefit from rising rents.
Risks of Buying Prologis Stock
There are two big risks that investors should think about before buying Prologis stock.
First, do you think that the pandemic will make it impossible for companies to maintain their supply chains, or do you think that innovative ideas will keep the consumer economy in good shape?
If you honestly believe that COVID-19 will break supply chains in numerous industries, then you probably don’t want to buy Prologis stock. If you believe Prologis will find inventive ways to serve its clients, then it makes sense to buy the stock.
Second, Prologis shares have a fairly high price right now. Trading at over 25x FFO, Prologis shares are priced to perfection. So, if you see a world where retailers struggle to meet consumer demand, ecommerce falls, and shipping companies like UPS, who are customers, fail to meet their numbers then Prologis may be swimming against the economic tid.
Nevertheless, Prologis has a solid balance sheet with high levels of cash, reasonable levels of debt for a real estate investment trust, and still pays out a generous dividend north of 2%. For passive income investors in particular who want exposure to real estate with a firm that stands out with Fortune 500 clients, Prologis is attractive.
PLD Vs CCI VS EQIX REITs: Which Is Best?
Prologis has plenty of competitors who want to attract clients by making supply chains and warehousing even more efficient. Some of the top competitors include:
Can these competitors beat Prologis? In most cases, that seems unlikely.
Prologis has $2.2 trillion worth of goods moving through its distribution centers every year. The company’s shares have also shown a steady increase in value that will attract investors.
Digital Reality stands out as the most appealing competitor because it has fairly reasonable prices and has 15 consecutive years of dividend increases.
Is Prologis Stock a Buy? The Bottom Line
The question still remains. Is Prologis stock a buy? There is a chance that the global pandemic will hurt supply chains. Should unemployment rise further, consumer spending diminish and demand for ecommerce goods diminish, it’s possible that Prologis customers will suffer, and in turn will hurt its ability to negotiate leases.
Whether PLD share price can maintain an upwards trajectory depends on whether global companies can meet the needs of consumers without spending too much money moving products around the world.
More likely than not, Prologis will thrive. It is well diversified with a broad and top tier customer base, it has a strong balance sheet and no debt maturities due for a couple of years. The bottom line is Prologis offers a compelling investment option for income oriented investors, and especially so on a pullback in share prices.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.