The stock of Medical Properties Trust (NYSE:MPW, 30-year Financials) is believed to be 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 $21.85 per share and the market cap of $12.7 billion, Medical Properties Trust stock is believed to be fairly valued. GF Value for Medical Properties Trust is shown in the chart below.
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.
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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. Medical Properties Trust has a cash-to-debt ratio of 0.06, which is in the middle range of the companies in REITs industry. GuruFocus ranks the overall financial strength of Medical Properties Trust at 3 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:
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 $1.2 billion and earnings of $0.81 a share. Its operating margin of 66.13% better than 77% 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:
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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Medical Properties Trust is 5.4%, which ranks better than 74% of the companies in REITs industry. The 3-year average EBITDA growth rate is 4.1%, which ranks better than 66% 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 5.29 while its WACC came in at 4.71. The historical ROIC vs WACC comparison of Medical Properties Trust is shown below:
To conclude, the stock of Medical Properties Trust (NYSE:MPW, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 66% of the companies in REITs industry. To learn more about Medical Properties Trust stock, you can check out its 30-year Financials here.
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