The stock of Community Healthcare Trust (NYSE:CHCT, 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 $48.99 per share and the market cap of $1.2 billion, Community Healthcare Trust stock is believed to be fairly valued. GF Value for Community Healthcare Trust is shown in the chart below.
Because Community Healthcare 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 11.7% over the past five years.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Community Healthcare Trust has a cash-to-debt ratio of 0.01, which is worse than 88% of the companies in REITs industry. The overall financial strength of Community Healthcare Trust is 4 out of 10, which indicates that the financial strength of Community Healthcare Trust is poor. This is the debt and cash of Community Healthcare Trust over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Community Healthcare Trust has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $75.7 million and earnings of $0.8 a share. Its operating margin is 36.90%, which ranks in the middle range of the companies in REITs industry. Overall, the profitability of Community Healthcare Trust is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Community Healthcare 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 Community Healthcare Trust is 11.7%, which ranks better than 87% of the companies in REITs industry. The 3-year average EBITDA growth rate is 13.4%, which ranks better than 83% of the companies in REITs industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Community Healthcare Trust's return on invested capital is 4.65, and its cost of capital is 4.43. The historical ROIC vs WACC comparison of Community Healthcare Trust is shown below:
In conclusion, Community Healthcare Trust (NYSE:CHCT, 30-year Financials) stock is estimated to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 83% of the companies in REITs industry. To learn more about Community Healthcare 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.