In a bid to boost my holdings and returns, I have been researching penny stock Empiric Student Property (LSE:ESP). Could this real estate investment trust (REIT) be a good addition to my portfolio? Let’s take a closer look.
Student accommodation
As a quick reminder, a REIT is a business set up and designed to invest in real estate and provide returns to its shareholders. In fact, one of the rules of being a registered REIT is that 90% of profits must be passed to shareholders. REITs can be good for boosting my passive income stream and I already own a few as part of my holdings.
Empiric is a REIT that specialises in investing in and managing purpose-built student accommodation. It targets prime university cities and towns throughout the UK.
So what’s happening with Empiric shares currently? It is worth remembering that a penny stock is one that trades for less than £1. As I write, the stock is trading for 87p. At this time last year, it was trading for 92p, which is a 5% drop over a 12-month period.
The bull and bear case
When researching student admission, I saw that student numbers are increasing, along with demand for student accommodation. Empiric could benefit and continue to boost performance and returns in a burgeoning market. Speaking of returns, the shares currently offer a dividend yield of 4%. This is in line with the FTSE 100 average of 3%-4%.
Covid-19 had a material impact on many universities. Students stayed at home, did not apply for places, and lectures moved online. This new way of learning could have an impact on Empiric. Could there be less of a demand for accommodation if lectures remain online? Furthermore, the threat of new Covid strains still looms large.
Shareholder returns are underpinned by performance. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that Empiric has recorded consistent revenue and profit for the past four years. This was even the case during the pandemic-affected year of 2020. I’m keen to see whether 2022 results are close to pre-pandemic levels.
With potentially lucrative growth opportunities ahead, I wanted to learn more about Empiric’s price-to-earnings growth ratio (PEG). The general rule here is that a ratio of below one is favourable. Empiric’s current PEG ratio stands at an enticing 0.7.
A penny stock I would buy
Property stocks have traditionally been seen as a good way to combat soaring inflation. I have purchased a number of REITs in the past six months for my holdings. I would also add Empiric shares to my holdings.
The student accommodation market is a burgeoning one, especially with the influx of overseas students. This increased demand has led to a shortage of beds, which in turn, presents an opportunity for firms like Empiric to grow and boost performance and returns.
