Medical Properties Trust Stock Is Believed To Be Fairly Valued

GuruFocus.com
·4 min read

- By GF Value

The stock of Medical Properties Trust (NYSE:MPW, 30-year Financials) shows every sign of being fairly valued, 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 $21.01 per share and the market cap of $12.4 billion, Medical Properties Trust stock is believed to be fairly valued. GF Value for Medical Properties Trust is shown in the chart below.


Medical Properties Trust Stock Is Believed To Be Fairly Valued
Medical Properties Trust Stock Is Believed To Be Fairly Valued

Because Medical Properties Trust is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 5.4% over the past five years.

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

Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Medical Properties Trust has a cash-to-debt ratio of 0.07, which which ranks in the middle range of the companies in REITs industry. The overall financial strength of Medical Properties Trust is 4 out of 10, which indicates that the financial strength of Medical Properties Trust is poor. This is the debt and cash of Medical Properties Trust over the past years:

Medical Properties Trust Stock Is Believed To Be Fairly Valued
Medical Properties Trust Stock Is Believed To Be Fairly Valued

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Medical Properties Trust has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $1.3 billion and earnings of $0.94 a share. Its operating margin of 66.59% better than 79% of the companies in REITs industry. Overall, GuruFocus ranks Medical Properties Trust's profitability as fair. This is the revenue and net income of Medical Properties Trust over the past years:

Medical Properties Trust Stock Is Believed To Be Fairly Valued
Medical Properties Trust Stock Is Believed To Be Fairly Valued

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 Medical Properties Trust is 5.4%, which ranks better than 77% of the companies in REITs industry. The 3-year average EBITDA growth rate is 4.1%, which ranks better than 67% of the companies in REITs industry.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Medical Properties Trust's ROIC is 5.28 while its WACC came in at 4.64. The historical ROIC vs WACC comparison of Medical Properties Trust is shown below:

Medical Properties Trust Stock Is Believed To Be Fairly Valued
Medical Properties Trust Stock Is Believed To Be Fairly Valued

In short, the stock of Medical Properties Trust (NYSE:MPW, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 67% of the companies in REITs industry. To learn more about Medical Properties Trust 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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