Why Vonovia’s share has fallen 32.7% since the beginning of the year!

Yes it Vonoviastock (NASDAQ: AMD) has actually fallen 32.7% year-to-date. If we look at a chart, we see a performance ranging from EUR 41.93 to EUR 28.23. Although we can say: The low this year is even 26.95 euros.

However, we do not want to dwell on finding a bottom or a possible bottom today. No, but take a look at the Vonovia stock to see what triggered the strong divestment. I see some factors that are relevant, but they also show that it could be exaggerated.

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Vonovia share: debt, pricing, high?

There may have been a few reasons for the divestment of the Vonovia share. Possibly starts with a rather expensive valuation. The price-FFO ratio has meanwhile peaked at a value of over 20. At the beginning of the year, however, it was below 20. Although these key figures are changing at the moment, more on that later. The dividend yield was at least already attractive with almost 4 per cent. But: In recent years, there have been times when it was not even 3%. Expensive, expensive? Optionally.

Another reason why Vonovia shares are falling so low has to do with the lack of compensation against inflation. Meanwhile, the valuation, with a price-to-FFO ratio of less than 10 and a dividend of almost 6%, is enough to pull it off. But: It may need the case. The DAX residential real estate group has hardly any pricing power. The first announcement of a possible rent increase led directly to a public and political outcry.

In addition, the debt decreases. Vonovia owns a double-digit billion amount of borrowed funds in the short and long term. This is not unusual for real estate groups, which are, after all, often a certain amount of credit leverage. But investors fear that the DAX group will have to refinance on less favorable terms. This in turn can affect growth.

It’s … a little deep!

Nevertheless, there are a few things we should not ignore when it comes to the Vonovia stock. For example, that the business model as a residential real estate group is very, very intact and timeless. Not even cyclical. The apartments are scarce, and even vacant spaces can be quickly rented again. In that respect, a not insignificant portion of sales is very secure.

In fact, Vonovia is also in a state of growth. As a result of the acquisition of Deutsche Wohnen, the funds from the operation increased per. share to EUR 0.73 per share in the first quarter. If we extrapolate this for an entire year, we get the above value with a price-FFO ratio of less than 10. The dividend per. share of EUR 1.66, which therefore seems very durable, may also indicate an undervaluation.

One risk with the Vonovia share is, of course, that interest rates will rise sharply and slow growth. Nevertheless, the question: what did it take to ruin the investment dissertation? In any case, the risk / return ratio is attractive to me after the divestment of 32.7% this year.

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Vincent owns shares in Vonovia. The Motley Fool does not own any of the listed shares.

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