Investing for your retirement is one of the most important goals any investor can have. Not only would most of us like to retire early, but we would like to be financially secure when we do finally retire.
Investing in the stockmarket may seem like a risky way of achieving these goals, but investors should remember, that over the long term, shares are the best performing asset class overall. Sure, there will be volatility along the way, but if you have a time horizon of at least five years, then there is no reason to avoid the stockmarket altogether.
With this in mind, I have been keeping a close eye on retirement village operator Aveo Group (ASX: AOG).
It might be hard to believe, but the recent market decline has had little impact on a number of stocks including Aveo Group. As the chart below shows, it has outperformed the broader market by more than 28% over the past year and possibly more importantly, hasn't experienced the sharp falls seen by many other companies over the past few months.
Aveo Group (formerly FKP Property Group) was previously a diversified property manager but over recent years has developed a strategy to become a leading pure retirement village owner and operator in Australia. The group currently manages 75 retirement villages in Australia with more than 12,000 residents under its management.
Aveo derives the majority of its income through management fees, unit sales and care and support services provided to retirees throughout its villages.
In the financial year 2015 (FY15), the Group was able to deliver a 30% increase in underlying earnings to $54.7 million. Although a capital raising diluted earnings on a per share basis by nearly half, Aveo is forecasting significantly higher earnings per share growth in FY16 on the back of forecast underlying earnings growth of at least 45%.
The group has a strong pipeline of new units to be constructed over the next three financial years along with plans to dispose of some of its remaining non-retirement assets (valued at $559 million), to fund further developments in its core retirement projects.
In addition to this, Aveo has a fairly strong balance sheet with gearing of around 14%, along with net tangible assets per share of $2.85.
Aveo's exposure to the ageing population theme should not only provide investors with a defensive investment but also one with excellent growth potential. Investors can also expect to receive a growing income stream, with the company forecasting an upcoming full year distribution of 8 cents per share, an increase of 60% over the previous year.
At the current share price, Aveo is trading on a price to earnings (P/E) ratio of around 24x FY15 earnings. Based on FY16 forecasts however, Aveo would be trading on a forecast P/E ratio of around 16.
While I would like to have seen the share price decline somewhat over the past few months to provide a more attractive entry point, the stocks resilience has reinforced my thoughts about the company's strong underlying fundamentals. For investors with a long time horizon now could be a good time to start accumulating the stock as there appear to be many years of growth ahead of it.
