The St. Joe Company Stock: Stocks are getting very expensive (NYSE:JOE)


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When it comes to the real estate market, it’s all about location. Where a business operates can have a significant impact on its growth potential and the cash flow it generates. One company in this space that investors have been very excited about in recent months has been St. Joe’s Society (JOE). The company’s recent growth has been quite rapid after years of steady expansion. And with a plan put in place by the company to reach new highs, investors believe the upside for them could be significant. While that’s a possibility, it’s also undeniable that there’s a downside to buying from such a popular company. Stocks today, for example, are priced at levels that might be difficult to justify. At best, the business could be valued at fair value. But if the company’s financial performance were to eventually return to previously seen levels, shares would likely see a significant decline from here. So, ultimately, the risk/reward ratio for this particular outlook probably doesn’t make sense for more cautious investors. Instead, it’s the domain of speculators who don’t hesitate to make a bet with their investment funds.

Recent performance has been excellent

In July 2021, I wrote my most recent article on St. Joe. At that point, I recognized that the business was growing faster than I had anticipated. The revenue expansion has been impressive as management has rushed to sell additional residential sites and engage in its other business activities such as asset management and the operation of the properties it owns. But ultimately, I argued that while the company is likely an attractive prospect with near-term growth potential, the shares were trading at levels that were hard to justify. And following that, I rated the company as a neutral prospect. Since then, the market has not agreed with me at all. Investors buying into the company would have generated a profit of 31.5%. This compares to the 2.1% return achieved by the S&P 500 over the same time window.

This increase in the share price was not without cause. You see, the last time I wrote about the company, the most recent quarter for which data was available was the company’s first quarter of fiscal 2021. Today, we now know the financial performance for the entirety of this year. And the performance was quite robust. After seeing revenue grow at an annualized rate of 13.5% between 2016 and 2020, growth in 2021 was a solid 66.3%. That brought sales to $267 million, up from $160.6 million for 2020. Acres of land the company owns in northwest Florida. Of note, that hasn’t changed much from the 177,000 acres the company owned in 2017.

Historical financial data

Author – SEC EDGAR Data

According to management, the number of plots sold amounted to 804 during the year. This was in addition to the sale of two houses. By comparison, in fiscal 2020, the company sold 509 residential sites and zero homes. Not only has the number of land sold increased, but the price at which the sales have taken place has also increased. According to available data, the average price per residential site was $157,000. That compares to $124,000 reported for the company’s 2020 fiscal year. This is an area I like to point out when considering whether or not the company is sustainable at current prices. More than a year ago, management clearly announced its intention to regularly sell 1,000 residential sites per year. It’s probably doable. But the price at which these take place can vary depending on market demand. In 2016, the average price was $114,000. This amount fell to $95,000 in 2017 before dropping to $78,000 in 2018. 2019 saw an average price of $87,000 before seeing the increase to $124,000 in 2020. The real estate market, especially in the Sunbelt region of the United States, is really on fire. now. But it is not known how long this will remain the case. A fall in prices could have a significant negative impact on the business.

Residential site revenue

Author – SEC EDGAR Data

Now, in terms of earnings, the company’s situation was also positive, the net profit for the period in 2021 was $74.5 million. This compares to $45.2 million reported for 2020. Cash flow from operations increased from $37.3 million to $111.8 million. And if we look at EBITDA, we’ll see a similar increase from $59.9 million to $112.7 million. Again, company pricing will have a significant impact on these cash flows. Probably even more than it will be on revenue.

Residential sites sold


As for the company’s pricing, it’s worth noting that the shares look high even though we’re using 2021 numbers. On a price/earnings basis, for example, the company is trading at a multiple of 40.1 . More realistic would be the price versus operating cash flow multiple. This amounts to 26.7 for the 2021 financial year. And the EV/EBITDA multiple is 28.2. When I last wrote about the company, I projected those numbers at 24.4, 29.5, and 19.6, respectively. Thus, in two of the three cases, the shares became even more expensive. On the operating cash flow statement, stocks have become slightly cheaper. Although the price/earnings ratio seems ridiculously high, the other metrics are not unreasonable for a growing, high-quality business. However, if performance were to ever pull back from what the company achieved in, say, 2020, then investors could be in for a world of pain. The P/E ratio using 2020 numbers would be 66.2. The price to operating cash flow ratio would climb to 80.1. And the EV/EBITDA multiple would be 53.1.

Trading multiples

Author – SEC EDGAR Data

To put the company’s pricing into perspective, I decided to compare it to some similar companies. These five companies were trading at prices relative to operating cash flow multiples ranging from a low of 11.8 to a high of 122.1. However, only one of the five companies was cheaper than St. Joe. Using the EV to EBITDA approach, the range was 5.8 to 250.2. In this case, two of the five companies were cheaper than our prospect.

Company Price / Operating Cash EV / EBITDA
St. Joe’s Society 26.7 28.2
The RMR Group (RMR) 11.8 5.8
Tejon Ranch (TRC) 76.6 133.7
Kennedy-Wilson Holdings (KW) N / A 10.2
Compass (COMP) 45.3 N / A
Redfin Corporation (RDFN) 122.1 250.2


Compared to the competition, St. Joe may not be reasonably priced. If management can continue to grow the business, then perhaps further increases are possible. But at the end of the day, investing is all about risk. And there’s no denying that when multiples are high and growth prospects are likely limited, and when prices are only temporarily high for the company’s offerings, the risks may very well outweigh the benefits. Due to these factors, I maintain my neutral stance on the company for the time being. But if the headline gets much higher, I wouldn’t rule out going slightly bearish.


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