Sabra Health Care REIT, Inc. (NASDAQ:SBRA) shares are down more than -8.90% this year and recently decreased -0.47% or -$0.08 to settle at $17.10. Community Healthcare Trust Incorporated (NYSE:CHCT), on the other hand, is down -11.03% year to date as of 02/07/2018. It currently trades at $25.00 and has returned -6.16% during the past week.
Sabra Health Care REIT, Inc. (NASDAQ:SBRA) 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. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect SBRA to grow earnings at a 6.00% annual rate over the next 5 years.
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 65.7% for Community Healthcare Trust Incorporated (CHCT).
Earnings don’t always accurately reflect the amount of cash that a company brings in. SBRA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.23. Comparatively, CHCT’s free cash flow per share was -0.05. On a percent-of-sales basis, SBRA’s free cash flow was -0.02% while CHCT converted -0% of its revenues into cash flow. This means that, for a given level of sales, CHCT is able to generate more free cash flow for investors.
SBRA’s debt-to-equity ratio is 0.89 versus a D/E of 0.21 for CHCT. SBRA is therefore the more solvent of the two companies, and has lower financial risk.
SBRA trades at a forward P/E of 9.33, a P/B of 0.57, and a P/S of 10.19, compared to a P/B of 1.41, and a P/S of 13.47 for CHCT. 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. SBRA is currently priced at a -21.92% to its one-year price target of 21.90. Comparatively, CHCT is -14.68% relative to its price target of 29.30. This suggests that SBRA 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 2.80 for SBRA and 2.00 for CHCT, which implies that analysts are more bullish on the outlook for SBRA.
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. SBRA has a short ratio of 6.94 compared to a short interest of 5.71 for CHCT. This implies that the market is currently less bearish on the outlook for CHCT.
Community Healthcare Trust Incorporated (NYSE:CHCT) beats Sabra Health Care REIT, Inc. (NASDAQ:SBRA) on a total of 8 of the 14 factors compared between the two stocks. CHCT is growing fastly, has higher cash flow per share, has a higher cash conversion rate and has lower financial risk. Finally, CHCT has better sentiment signals based on short interest.