Welltower Stock Appears To Be Modestly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Welltower (NYSE:WELL, 30-year Financials) is believed to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $73.22 per share and the market cap of $30.6 billion, Welltower stock is believed to be modestly overvalued. GF Value for Welltower is shown in the chart below.


Welltower Stock Appears To Be Modestly Overvalued
Welltower Stock Appears To Be Modestly Overvalued

Because Welltower is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.

Link: These companies may deliever higher future returns at reduced risk.

Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Welltower has a cash-to-debt ratio of 0.14, which is better than 70% of the companies in REITs industry. GuruFocus ranks the overall financial strength of Welltower at 4 out of 10, which indicates that the financial strength of Welltower is poor. This is the debt and cash of Welltower over the past years:

Welltower Stock Appears To Be Modestly Overvalued
Welltower Stock Appears To Be Modestly Overvalued

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Welltower has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.4 billion and earnings of $1.75 a share. Its operating margin is 14.26%, which ranks worse than 81% of the companies in REITs industry. Overall, the profitability of Welltower is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Welltower over the past years:

Welltower Stock Appears To Be Modestly Overvalued
Welltower Stock Appears To Be Modestly Overvalued

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Welltower is -1.9%, which ranks in the middle range of the companies in REITs industry. The 3-year average EBITDA growth rate is -7.7%, which ranks in the middle range of the companies in REITs industry.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Welltower's ROIC was 2.21, while its WACC came in at 6.81. The historical ROIC vs WACC comparison of Welltower is shown below:

Welltower Stock Appears To Be Modestly Overvalued
Welltower Stock Appears To Be Modestly Overvalued

Overall, Welltower (NYSE:WELL, 30-year Financials) stock is estimated to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in REITs industry. To learn more about Welltower stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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    A 14-year-old driver died after an early morning crash in a stolen vehicle Friday, according to Stockton police. Stockton police tried to pull over the stolen vehicle Friday around 12:41 a.m. near El Dorado Street and Fremont Street. Police said the 14-year-old driver did not pull over and led officers on a 2-minute chase before crashing into a tree at El Dorado Street and East Stadium Street. The juvenile female passenger was detained and not hurt, police said. The 14-year-old boy was taken to a nearby hospital where he later died, police said Saturday. Detectives are still investigating. No other details were released.