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Realty Income stock is in a freefall this month. It has slumped in the last 19 consecutive days, its longest losing streak in years. It has now plunged to a low of $55.27, down by over 17% from its highest level this year. So, is this crash a good buying opportunity as it gets oversold?
Why Realty Income stock is falling
Realty Income is one of the best-known real estate investment trust (REIT) in the world. It has a long track record of paying monthly dividends and is one of the few dividend kings in the US. A dividend king is a company that has grown its dividends consecutively for over 50 years.
Realty Income is also loved because of its business strategy, which is a net lease approach. Here, the company buys property and enters long-term lease contracts with clients, who are responsible for managing them. As a result, this helps it have relatively higher margins than other companies in the industry.
Realty Income stock is now crashing because it is competing with the bond market, where yields are going parabolic. The five-year yield jumped to a two-decade high of 5.12%, while the two-year has soared past 4.2%. In contrast, Realty Income yields about 5.76%. As such, many investors are moving to the bond market, which offers little risk.
Another reason behind the crash is that Realty Income has substantial debt. Its balance sheet shows that it has short-term debt of $2 billion and over $30 billion in net debt. As interest rates rise, the company’s expenses are rising as well. The most recent results showed that its total interest expense jumped from $322 million in 2022 to $1.18 billion in the trailing twelve months.
More data shows that the company’s bond yields are rising, with those running through January 2031 yielding 5.46%. Those running through January 2029 are yielding 5.24%.
These events have pushed some analysts to slash their targets. Kyro data shows that most analysts have trimmed their estimates. Evercore slashed from $68 to $65, while Mizuho cut from $66 to $61. Barclays slashed the target from $67 to $65, while RBC cut it to $71.
Realty Income shares have become highly oversold
Realty Income stock chart | Source: TradingView
Technicals explain why the stock has plunged this year. It formed a double-top-like pattern at $66.15 and a neckline at $58.30, its lowest level on March 26. This pattern often leads to further downside.
The stock also formed a death cross pattern, which happens when the 50-day and 200-day moving averages cross each other. These technicals suggest that the stock has more downside t go.
On the positive side, the Relative Strength Index (RSI) has slumped to the extreme oversold level of 16. It is the lowest it has fallen in months. Therefore, there is a likelihood that the stock will rebound, potentially to $58 as investors buy the dip. In the long term, however, the stock will remain under pressure as US bond yields jump.
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