Ventas, Inc. (NYSE:VTR) shares are down more than -7.47% this year and recently decreased -0.64% or -$0.36 to settle at $55.53. Medical Properties Trust, Inc. (NYSE:MPW), on the other hand, is down -5.59% year to date as of 01/29/2018. It currently trades at $13.01 and has returned -0.54% during the past week.
Ventas, Inc. (NYSE:VTR) and Medical Properties Trust, Inc. (NYSE:MPW) are the two most active stocks in the REIT – Healthcare Facilities industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
Companies that can consistently grow earnings at a high compound rate usually have the greatest potential to create value for shareholders in the long-run. Analysts expect VTR to grow earnings at a 6.90% annual rate over the next 5 years. Comparatively, MPW is expected to grow at a 6.21% annual rate. All else equal, VTR’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 94.51% for Medical Properties Trust, Inc. (MPW). VTR’s ROI is 4.50% while MPW has a ROI of 5.70%. The interpretation is that MPW’s business generates a higher return on investment than VTR’s.
Cash is king when it comes to investing. VTR’s free cash flow (“FCF”) per share for the trailing twelve months was -0.07. Comparatively, MPW’s free cash flow per share was -0.06. On a percent-of-sales basis, VTR’s free cash flow was -0.72% while MPW converted -0% of its revenues into cash flow. This means that, for a given level of sales, MPW is able to generate more free cash flow for investors.
VTR’s debt-to-equity ratio is 1.05 versus a D/E of 1.26 for MPW. MPW is therefore the more solvent of the two companies, and has lower financial risk.
VTR trades at a forward P/E of 29.33, a P/B of 1.81, and a P/S of 5.62, compared to a forward P/E of 12.49, a P/B of 1.24, and a P/S of 7.34 for MPW. VTR is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. VTR is currently priced at a -11.34% to its one-year price target of 62.63. Comparatively, MPW is -4.2% relative to its price target of 13.58. This suggests that VTR is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.20 for VTR and 2.90 for MPW, which implies that analysts are more bullish on the outlook for VTR.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. VTR has a beta of 0.05 and MPW’s beta is 0.84. VTR’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. VTR has a short ratio of 3.55 compared to a short interest of 11.96 for MPW. This implies that the market is currently less bearish on the outlook for VTR.
Medical Properties Trust, Inc. (NYSE:MPW) beats Ventas, Inc. (NYSE:VTR) on a total of 7 of the 14 factors compared between the two stocks. MPW is growing fastly, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. In terms of valuation, MPW is the cheaper of the two stocks on an earnings and book value, Finally, DOC has better sentiment signals based on short interest.