The stock of Welltower Inc (WELL, Financial) saw a daily gain of 3.58% and reported an Earnings Per Share (EPS) of 0.23. Given these figures, one might question if the stock is fairly valued. This article provides a comprehensive analysis of Welltower's valuation, inviting readers to delve into the details.
Company Introduction
Welltower owns over 1,900 properties across the senior housing, medical office, and skilled nursing/post-acute care sectors. With a global presence in countries like Canada and the United Kingdom, Welltower seeks further investment opportunities in nations with mature healthcare systems similar to the United States. The company's stock price is $85.1, while its fair value, according to the GF Value, is $81.23. This comparison sets the stage for a deeper examination of Welltower's value.
Understanding the GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor rooted in past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value, Welltower appears to be fairly valued. This conclusion is based on historical multiples, an internal adjustment factor reflecting past growth, and future performance estimates. If the stock price is significantly above the GF Value Line, it may be overvalued and likely to yield poor future returns. Conversely, if the stock price is significantly below the GF Value Line, it may be undervalued and expected to offer higher future returns. At its current price of $85.1 per share, Welltower's stock seems to be fairly valued.
As Welltower is fairly valued, the long-term return of its stock is likely to align with its business growth rate.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to scrutinize a company's financial strength before investing. Welltower's cash-to-debt ratio is 0.04, ranking lower than 61.55% of companies in the REITs industry. This indicates that Welltower's financial strength is relatively poor.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. Welltower has been profitable for 10 out of the past 10 years, with an operating margin of 14.08%. However, this ranks lower than 87.43% of companies in the REITs industry, indicating only fair profitability.
One crucial factor in a company's valuation is its growth. Companies that grow faster generally create more value for shareholders. Welltower's average annual revenue growth is -0.2%, ranking lower than 57.48% of companies in the REITs industry. Its 3-year average EBITDA growth is -6.1%, which ranks lower than 68.91% of companies in the REITs industry.
ROIC vs. WACC
Another way to assess a company's profitability is by comparing its return on invested capital (ROIC) and the weighted average cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the average rate a company is expected to pay to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Welltower's ROIC was 2.31, and its WACC was 8.7.
Conclusion
Overall, the stock of Welltower (WELL, Financial) appears to be fairly valued. The company's financial condition is poor, its profitability is fair, and its growth ranks lower than 68.91% of companies in the REITs industry. To learn more about Welltower's stock, you can check out its 30-Year Financials here.
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