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Company name Extra Space Storage, Inc.
Stock ticker EXR
Live stock price [stckqut]EXR[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Poor
Sales growth Good
EPS growth Good
P/E growth Good
EBIT growth Good

ANALYSIS

Confident Investor Rating Good
Target stock price (TWCA growth scenario) $49.69
Target stock price (averages with growth) $63.82
Target stock price (averages with no growth) $39.6
Target stock price (manual assumptions) $50.21

The following company description is from Google Finance: http://www.google.com/finance?q=exr

Extra Space Storage Inc. is a self-administered and self-managed real estate investment trust (REIT). The Company owns, operates, manages, acquires, develops and redevelops professionally managed self-storage facilities. As of December 31, 2011, Extra Space Storage Inc. held ownership interests in 697 operating properties. Of these operating properties, 356 are wholly owned, and 341 are owned in joint venture partnerships. An additional 185 operating properties that are owned by franchisees or third-parties in exchange for a management fee, bringing the total number of operating properties, which it owns and/or manages to 882. The Company operates in three segments: property management, acquisition and development; rental operations, and tenant reinsurance.

 

Confident Investor comments: This is a very solid REIT. If you need real estate exposure in your portfolio, it probably doesn’t get much better than Extra Space [stckqut]exr[/stckqut]. At this price and at this time, I think that a Confident Investor can confidently invest in this stock.

 

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I recently started a thread of discussion regarding why I avoid companies that are unprofitable. The topic is fairly long so I am breaking it up into several posts. You can see the first posting here.

One of the biggest reasons that you should avoid unprofitable companies is that it is indicative of a failure. It shows that the company has failed in developing and executing a plan that will keep the company profitable. I have never seen a plan that has a profitable company intentionally becoming unprofitable.

Let’s be clear, the issue is not an unprofitable company that is getting better (or approaching profitability). This happens on a regular basis especially for relatively young companies. In this case, I am talking about a company that was profitable and now is not profitable.

In every case of this profitability downturn that I have ever examined, the issue is always that factors turned against the company that the management did not prepare to overcome. These factors could be changes in the pricing of commodities, changes in economic situations, changes in competition, or many other changes. Regardless of the unforeseen change, the real issue is that it was unforeseen and the management did not take effective steps to anticipate and eliminate the change.

So why are you considering buying the stock? Did the board of directors swap out the management of the company?  Did the board of directors swap themselves out? All of them are culpable for the bad decisions and lack of leadership. Why do you think they are smart now when they weren’t before?

There are companies that have better management than the money losing company. While past success or failure is not indicative of future success or failure – it is better than operating in a naive vacuum.

If you want to be notified when I post about avoiding unprofitable companies, there are several straightforward ways to do this. You can subscribe to my feed in your news reader. You can also sign up for my weekly newsletter which will give you the articles for the week. Finally, you can subscribe to my Twitter account @ConfidentInvest.

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Former Citigroup Chairman & CEO Sanford I. Weill, suggested the breakup of big banks in a recent interview.

 

“What we should probably do is go and split up investment banking from banking, have banks be deposit takers, have banks make commercial loans and real estate loans, have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail,” Weill said.

“If they want to hedge what they’re doing with their investments, let them do it in a way that’s going to be mark-to-market so they’re never going to be hit.”

“I’m suggesting that they be broken up so that the taxpayer will never be at risk, the depositors won’t be at risk, the leverage of the banks will be something reasonable, and the investment banks can do trading, they’re not subject to a Volker rule.”

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I recently started a thread of discussion regarding why I avoid companies that are unprofitable. The topic is fairly long so I am breaking it up into several posts. You can see the first posting here.

This is the biggest reason to avoid unprofitable companies.  There is nothing scarier than a desperate manager that is trying to squeeze success out of a broken system.  Managers in this situation almost always make short-term decisions that affect long-term results.

The easiest way for me to make this point is to point out situations where this happened.  In 2006, a very unprofitable General Motors [stckqut]GM[/stckqut] sold its financial arm, GMAC, to Cerberus.  At the time, GMAC was the most profitable part of GM, but the cash was used to shore up the money-losing automotive operations. GMAC later struggled due its sub-prime lending activities; however, this was definitely the case of throwing out the best parts of the company to save the worst parts.  The stock price of GM dropped immediately after the sale.

Also, unprofitable companies will tend to curb hiring, reduce headcount, or close facilities. While this could be a good thing by trimming dead weight, it invariably causes some amount of internal strife and, at the worst, can hurt long-term revenue.

If you want to be notified when I post about avoiding unprofitable companies, there are several straightforward ways to do this. You can subscribe to my feed in your news reader. You can also sign up for my weekly newsletter which will give you the articles for the week. Finally, you can subscribe to my Twitter account @ConfidentInvest.