The stock of National Health Investors (NYSE:NHI, 30-year Financials) shows every sign of being modestly undervalued, 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 $66.24 per share and the market cap of $3 billion, National Health Investors stock gives every indication of being modestly undervalued. GF Value for National Health Investors is shown in the chart below.
Because National Health Investors is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 3.2% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. National Health Investors has a cash-to-debt ratio of 0.07, which ranks in the middle range of the companies in REITs industry. Based on this, GuruFocus ranks National Health Investors's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of National Health Investors 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. National Health Investors has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $330.6 million and earnings of $3.55 a share. Its operating margin of 66.02% better than 78% of the companies in REITs industry. Overall, GuruFocus ranks National Health Investors's profitability as fair. This is the revenue and net income of National Health Investors over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of National Health Investors is 3.2%, which ranks better than 69% of the companies in REITs industry. The 3-year average EBITDA growth is 2.9%, which ranks in the middle range of the companies in REITs industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, National Health Investors's return on invested capital is 7.23, and its cost of capital is 6.24. The historical ROIC vs WACC comparison of National Health Investors is shown below:
To conclude, the stock of National Health Investors (NYSE:NHI, 30-year Financials) gives every indication of being modestly undervalued. 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 National Health Investors stock, you can check out its 30-year Financials here.
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