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Why COVID-19 Has Been a Tailwind for St. Joe and Vacation Towns

By Luis Sanchez CFA - Feb 20, 2021 at 5:00AM

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St. Joe Company has benefited from people moving to Florida, a trend that has accelerated due to the COVID-19 pandemic.

St. Joe Company (JOE 3.44%) is a land development company in Florida that has benefited as people have moved to Florida. The COVID-19 pandemic accelerated the trend of people abandoning cities in favor of beachside vacation towns such as the ones St. Joe develops. Should investors count on this growth trend lasting past the end of the pandemic?

In this video from the Industry Focus podcast recorded on December 10, Motley Fool contributor Luis Sanchez and host Nick Sciple discuss how COVID-19 has affected the company's growth trajectory.

Nick Sciple: I find this St. Joe interesting because I always vacation on that Emerald Coast area of the county because I grew up in Mobile, Alabama and I go to Dustin all of the time. I do think those areas are incredibly undervalued or underappreciated as national vacation destinations. There's lots of folks from South in the Midwest that head down there. But I would say if you go to Dustin, Florida, there aren't any nicer beaches in the whole country that I've ever seen, which makes this area an interesting place to think that there could be continued growth as more and more people relocate. It's one of the important trends here for these folks that move away from cities here in 2020?

Luis Sanchez: Yeah. That's definitely been an interesting trend this year. I think if you look at the bigger picture trend, if you go back several years and you can look at the long-term demographic trends, I think it does support this idea of people moving into the Southeast, people retiring in Florida, moving to a nice area that's on the beach, like some of the communities that Joe is developing. But then of course, with COVID-19, it's accelerated some of those trends and you see a lot of people really abandon cities and move into vacation rentals, use them as more permanent residences and work remotely. Joe has certainly been a beneficiary of that trend.

Nick Sciple: Absolutely. Luis, you talked about this continued trend maybe toward move to the beach. Maybe some of these assets have some value. Similar to what I asked on Tech Specific, what could go wrong with this company?

Luis Sanchez: I think one thing that comes to mind is Joe has a very narrow specific geographic concentration with the panhandle, and there are benefits to that, but there are also very specific risks. If a big hurricane comes and wipes out the panhandle, that's going to hurt Joe. I'm sure they have insurance for that, but that's not going to be a good thing for their business. Natural disasters impacting their region, it won't be great. I think the big picture thing is you really just got to believe in that long-term trend of people continuing to move to Florida. The company has certain targets that it set. It refers to them as milestones. It wants to get to a point where selling 1,000 homes per year over the next couple of years, and they are also trying to develop 1,400 apartment units and a certain number of hotel rooms. They've taken this build it and they will come approach. If they build all this great stuff, but no one wants to live there, no one wants to go there well, then they're not going to earn a very good return on the investment they've made. With 2019, and what we mentioned about COVID, I think the market has taken a cue that this could be a beneficiary and the stock prices run up more than 50 percent. Now the valuation is a little bit more challenging than where it was a year ago. You really have to believe that it's going to hit its milestones so that it could grow into its valuation. Now, they're definitely benefiting from the interest in the Southeast right now. But what if we get on the other side of this pandemic and people realize, hey, I actually don't want to live in the suburbs, I actually do like cities and I want to move back? That could put a damper on the demand for their housing.

Nick Sciple: Yeah, just context on maybe some of how things have been pulled forward this year. In the most recent quarter, they've got a 72 percent year over year increase in home site sales. Obviously a significant boost in demand this year. I'll tell you, as someone, again, who has vacationed to this area for a long time, I think there's certainly going to be growth over time, but there is a question of how quick this growth might take place. They have lots and lots of land and it's going to take a long time to sell that off, and you may be waiting for a long time.

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