How Attractive Is Realty Income After Recent Share Price Gains?
6 Mins Read
If you are watching Realty Income and wondering whether now is the right moment to buy, hold, or sell, you are not alone. The share price has been quietly but steadily climbing in recent months, returning 4.4% over the last 30 days and gaining an impressive 14.8% year-to-date. Over the long term, Realty Income has delivered a total return of 28.3% over five years, which is considered strong for a real estate investment trust known for its monthly dividends.
What is driving these moves? Investors have started to gain confidence that the REIT sector is adapting to changing interest rates and economic conditions, and Realty Income’s steady cash flows seem to be winning over many skeptics. Even just this past week, shares ticked up by 1.9%, reinforcing a sense that risk perceptions are shifting in Realty Income’s favor.
Of course, price action only tells part of the story. When it comes to deciding what to do with the stock now, valuation matters. By running Realty Income through six different valuation checks, the company comes up as undervalued in two, resulting in a value score of 2 out of 6. That leaves room for both caution and curiosity, depending on which angle you look from.
Let us dig into what these valuation checks actually mean for today’s buyers and sellers. Before wrapping up, one approach will be covered that could powerfully reframe how you think about Realty Income’s true worth.
Realty Income scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
The Discounted Cash Flow (DCF) approach values Realty Income by projecting the company’s adjusted funds from operations into the future and then discounting those cash flows back to today’s dollars. This model helps estimate the ‘true’ intrinsic value of the business by taking into account both current performance and potential for future growth.
At present, Realty Income is generating free cash flow of $3.62 billion. Analysts forecast that this cash flow will rise over time, with projections reaching $4.74 billion by the end of 2029. After 2029, the free cash flow estimates continue upward, though these are largely extrapolated figures based on prevailing growth trends rather than direct analyst estimates.
Simply Wall St’s calculations indicate that the fair value of Realty Income using this two-stage DCF model is $94.32 per share. Compared to the current trading price, this figure suggests the stock is 35.9% undervalued. From the perspective of discounted cash flow, the stock stands out as offering significant upside for long-term investors willing to look past short-term volatility.
Our Discounted Cash Flow (DCF) analysis suggests Realty Income is undervalued by 35.9%. Track this in your watchlist or portfolio, or discover more undervalued stocks.
The price-to-earnings (PE) ratio is a widely used valuation metric for profitable companies because it measures what investors are willing to pay today for a dollar of current earnings. For steady income-producing businesses like Realty Income, the PE ratio provides a straightforward lens to compare profitability and future expectations against peers and the broader industry.
Growth prospects and risk profiles are crucial in shaping what is considered a “normal” or fair PE ratio. Companies with higher growth rates or lower risk typically command higher PE multiples. Those with uncertain outlooks or higher risk trade at lower ones. The context around a company’s earnings is just as important as the headline number itself.
Currently, Realty Income trades at a PE ratio of 60.8x. This is much higher than the average for Retail REITs, which stands at 27.1x, and also significantly above its peer average of 33.5x. To provide a more nuanced view, Simply Wall St’s proprietary “Fair Ratio” for Realty Income is 41.0x. The Fair Ratio goes beyond just industry or peer comparisons by factoring in the specific growth prospects, profit margins, risk characteristics, and even market cap unique to Realty Income. This provides a more accurate benchmark for whether the current valuation is justified.
Comparing the current PE ratio with the Fair Ratio, Realty Income appears to be trading at a premium. This suggests the stock is overvalued based on this analysis.
Earlier, we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. In simple terms, a Narrative is your story behind a company’s numbers: your perspective on its future, including what you think is a fair value, and your own estimates for revenue, earnings, and profit margins.
Rather than relying solely on static valuation models, Narratives connect a company’s unique story to your forecasts, and then to what you believe is the right price for the stock. Narratives on Simply Wall St are incredibly accessible. You can find them on the Community page, where millions of investors actively discuss and refine their investment views.
Using Narratives, you can quickly compare your most up-to-date fair value with the market price, helping you decide whether to buy, hold, or sell, while factoring in new developments like news and earnings reports, as all Narratives update dynamically. For example, some investors currently believe Realty Income is worth as little as $61 per share due to slower dividend growth, while others value it as high as $75, expecting resilience from global expansion and necessity-based assets. Narratives empower you to make investing decisions that are personal, timely, and grounded in both data and your outlook.
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.
