LTC Properties, Inc. (NYSE:LTC) shares are down more than -1.09% this year and recently decreased -0.51% or -$0.24 to settle at $46.47. Community Healthcare Trust Incorporated (NYSE:CHCT), on the other hand, is up 22.58% year to date as of 11/22/2017. It currently trades at $28.23 and has returned 0.89% during the past week.
LTC Properties, Inc. (NYSE:LTC) and Community Healthcare Trust Incorporated (NYSE:CHCT) are the two most active stocks in the REIT – Healthcare Facilities industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.
The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect LTC to grow earnings at a 4.00% annual rate over the next 5 years.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 65.7% for Community Healthcare Trust Incorporated (CHCT). LTC’s ROI is 6.00% while CHCT has a ROI of 1.60%. The interpretation is that LTC’s business generates a higher return on investment than CHCT’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. LTC’s free cash flow (“FCF”) per share for the trailing twelve months was +0.15. Comparatively, CHCT’s free cash flow per share was -0.05. On a percent-of-sales basis, LTC’s free cash flow was 0% while CHCT converted -0% of its revenues into cash flow. This means that, for a given level of sales, LTC is able to generate more free cash flow for investors.
LTC’s debt-to-equity ratio is 0.84 versus a D/E of 0.21 for CHCT. LTC is therefore the more solvent of the two companies, and has lower financial risk.
LTC trades at a forward P/E of 21.29, a P/B of 2.42, and a P/S of 11.06, compared to a P/B of 1.59, and a P/S of 15.24 for CHCT. LTC 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
When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. LTC is currently priced at a -3.31% to its one-year price target of 48.06. Comparatively, CHCT is -1.4% relative to its price target of 28.63. This suggests that LTC 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 2.90 for LTC and 1.80 for CHCT, which implies that analysts are more bullish on the outlook for LTC.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. LTC has a short ratio of 2.98 compared to a short interest of 4.19 for CHCT. This implies that the market is currently less bearish on the outlook for LTC.
LTC Properties, Inc. (NYSE:LTC) beats Community Healthcare Trust Incorporated (NYSE:CHCT) on a total of 8 of the 14 factors compared between the two stocks. LTC is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and higher liquidity. LTC is more undervalued relative to its price target. Finally, LTC has better sentiment signals based on short interest.