Monday, January 23, 2012

EXR: Something EXtRa

Extra Space Storage Inc. (EXR) is a real-estate investment trust specializing in self-storage facilities. One side-effect of the 2008 collapse of capitalist finance was that more people are renting because fewer people can afford, or get financing, to buy a home.

I rent -- I prefer to keep my money liquid in equities and currencies -- and I can tell you that it is an absolute fact that every renter needs more storage space. So arguably, EXR seems to have seized the zeitgeist and is riding it to Profitburg.

The company is based in Salt Lake City, Utah and owns 660 self-storage facilities all over the country.

The price began stair-stepping up in mid-March 2009 from its recession low of $4.93. The most recent leg up began on Oct. 4, 2011 at $17.29 and has continued to rise steadily with three quite mild corrections.

The stock set a new high today but quickly retreated into the range of Friday's price rise and is at present (about three hours before the close) doing a good imitation of a spinning top on the candlestick chart, a sign of indecision.

EXR is a blue-sky stock. Last March it exceeded its pre-recession high of $20.55, set in 2007 and has stayed above that level since last October.

It is the most bullish chart out of 24 that have been newly ranked strong buy under the Zacks system, which is heavily tilted toward analyst opinion. FL was in 2nd place, URI in 3rd and SNX in 4th. (See my essay "10,000 Charts" for a discussion of how I screen stocks.)

The blue-sky nature of the EXR chart was decisive in its selection for the top spot. But there is a shadow on the chart: The volume.

One difficulty in analyzing equities during this period is that volumes are down. Increasing volume adds credence to a price increase, but the price rises I've seen during recent screens have generally been on declining volume.

I could weave that observation into a narrative of a weakening bull market -- prices are up but traders really aren't all that interested.

Or I could stitch up a counter-narrative asserting that traders are sitting on the sidelines until the Euro crisis is resolved, and then there will come an explosive rise in the markets (no doubt accompanied by fireworks and the EU's anthem, courtesy of Beethoven's "Ode to Joy").

But honestly, I don't know what to make of it. So I'm simply choosing the best of what's at hand, and setting careful stops/loss levels. The future is unknown. The past is untouchable. Only the present lies within my grasp.

EXR, quite frankly, lacks financial bling. Its return on equity is a pathetic 4.6%. It is wallowing in debt, with a debt/equity ratio of 1.23.

Yet, its price has been bid up to nearly eight times sales, meaning as a trader I've got to cough up $7.76 to buy $1 in sales. Institutions love it, owning 95% of shares. It's a liquid stock, with an average volume of 758,000 shares a day.

So, bling or no, the big money obviously thinks EXR is a decent play.

EXR pays a quarterly dividend yielding 2.2% at present, The next ex-dividend date will come in March. Earnings will be announced Feb. 21.

The options inventory is weak -- only five strike prices for February with no open interest to speak of. Even the next month out has top open interest of only 104 contracts. And the bid-ask spreads are huge: $0.50/$5.40 for the $22.50 February call, for example.

 So EXR is a shares plays in my book. Which has the advantage of providing a dividend, so it's not all bad.

Decision for my account: I bought shares in EXR today. I don't like the price/sales ratio, but who am I to argue with the chart? Or the big money?

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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