Why so? It is a major component of Amerco, generating almost a third of Amerco's earnings and growing cash flow at a faster pace than the main business, U-Haul.
Self-storage has been enjoying strong growth supported by the current culture of materialism. This has been a long trend for which there is no end in sight. This is why the self-storage sector is currently priced around a 40 P/E. For example Sovran Self Storage Inc (SSS) trades at P/E 38, Public Storage (PSA) at P/E 40 and Extra Space Storage Inc (EXR) at P/E 35.
Amerco trades at P/E 12. The comparison clearly shows that the markets are not pricing in the self-storage segment of Amerco.
A simple calculation proves this: Amerco's EPS is $12.93, 28% of this comes from the self-storage business ($3.62/share). If this was priced at the same multiple as the rest of the self-storage companies, it would result in a stock price of $145 ($3.62*40). Amerco trades at $157, leaving the price for all the rest of Amerco's businesses at $12! ($157-$145=$12).
The P/E for the remaining of Amerco's businesses would be a stunningly low 1.28 (Amerco without its self-storage created an EPS of $9.31, resulting in $12/$9.31 = 1.28).
Why is the market not pricing Amerco's self-storage business like its competition:
- Amerco is illiquid. Does not need explaining. The least important of the three reasons, and something time will fix.
- Amerco is not understood by the markets and analysts to be in the self-storage business. For example just last week there was an article on Forbes about the largest self-storage REITs in the US, and Amerco was not even mentioned. As Kerrisdale highlighted in their report: Amerco, if converted to a REIT, it would be the 3rd-largest self-storage REIT in the US.
- Amerco's common stock was a bad investment for a long period of time due to an expensive 8 1/2% after-tax cost from its Preferred Stock. This led to very small coverage of Amerco by analysts. The Preferred Stock was retired in June 1, 2011. Chairman Joe Shoen's view on retiring the Preferred Stock; "it will accrue significant economic benefit to the common stock owners."
To sum things up: the reasons for Amerco being priced too cheaply seem to start disappearing. 3) coverage is getting better as Kerrisdale's report shows, 2) by looking at the recent price history of Amerco, the markets seems to start understanding what the true price of Amerco should be, and 1) this is something that will fix automatically.
I see a relative 50% upside in the stock within the next 3 months. This would mean a stock price of $236, a result from pricing in the self-storage business of Amerco at 35 P/E (and the remaining businesses at the current P/E of 12.)