A gain of 80% in 2019 for shares of Essential Properties Realty Trust, Inc. (EPRT) shows big buy demand along the way. This buying is very unusual and has been very consistent in 2019. The stock is likely being scooped up by big money managers. A great way to uncover tomorrow's winners is to look at how stocks are trading in relation to volumes. Essential Properties looks like an opportunity.
Smart money managers are always looking to bet on the next outlier stocks … the best in class. For Mapsignals, it's not enough to look at technicals and fundamentals alone. The key lies in the demand for shares … the big money.
I'll go into the fundamental picture later, but the true tell on the near-term trajectory of a stock lies in its trading activity. Simply put, it's all about supply and demand. When demand is higher than supply, the stock rises. When demand is lower than supply, stocks fall. For 2019, Essential Properties stock has seen strong demand, which indicates that shares have further upside potential.
For Mapsignals, when we look for an entry on a leading stock, we oftentimes look for stocks breaking higher with a surge in volumes. Just to show you what our big money activity signals look like, have a look at all of the big money (unusual institutional) signals Essential Properties stock has made over the past year. Focusing on 2019, you can see a lot of buy signals (green) that line up with a lift in the shares. The green signals are happening in a weak tape. This is likely a result of real estate stocks offering high yields in a low-yield environment:
Starting in 2019, Essential Properties stock has logged 14 big money buy signals, indicative of buying in the shares (see chart above). This shows that demand has rewarded the share price. It's been happening quite a bit recently. These data points suggest big money demand for the stock is high.
If you are going to make a bet on the direction of a stock, it is prudent to pay attention to how the shares are trading. Based on history, the odds suggest that the stock is poised for gains. The big money is always looking for an opportunity to buy undervalued shares on the cheap. Oftentimes, the leaders of a group attract smart investors. Essential Properties is a leader in real estate.
Mapsignals' goal is to identify tomorrow's top stocks today. We're basically looking for outlier companies with healthy fundamentals accompanied by big money signals (outsized institutional activity). We are looking for the big money bets because big money moves stocks. By studying these data points, we can make an educated guess as to which stocks institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.
When we decide on a long candidate, we consider prior leaders that have a history of technical outperformance. When they show leadership, we see these as opportunities. Below are a few areas in which Essential Properties shares have grabbed our attention year to date:
- YTD outperformance vs. market: +61.09% vs. SPDR S&P 500 ETF (SPY)
- YTD outpermormance vs. real estate ETF: +52.72% vs. iShares U.S. Real Estate ETF (IYR)
- Recent big money buy signals
Now, we take it a step further and score the best stocks showing big money trading activity. Below you can see the historical times since 2017 when Essential Properties made buy signals for Mapsignals. These are the highest-rated signals in our stock universe. What jumps out on the chart below is how the stock steadily rose after the first buy signal earlier this year. We are seeing that same activity now:
On top of a long-term technical picture that is strong, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Essential Properties' numbers are very strong:
- Q2 2019 net income increased $0.14 per share
- Q2 2019 core funds from operations (FFO) increased $0.29 per share
Essential Properties shares are breaking out with other real estate stocks. The company is doing well fundamentally, and any pullback is an opportunity.
We like the long-term story of the stock. The narrative for Essential Properties and other high-quality real estate investment trusts (REITs) is one of growth in the years ahead. We are always on the lookout for great companies. The best companies in a group tend to outperform over the long run. All of this points to a long-term opportunity for the stock.
The Bottom Line
Essential Properties is breaking out with buying pressure. Our big money indicator is signaling that we should take notice. Shares could be positioned for more upside. Given the historical growth in share price and healthy fundamentals, this stock could be worth a spot in a dividend-growth oriented portfolio.
Disclosure: The author holds no position in Essential Properties shares at the time of publication.