Sabra Health Care REIT, Inc. (NASDAQ:SBRA) shares are down more than -10.44% this year and recently increased 0.90% or $0.15 to settle at $16.81. Medical Properties Trust, Inc. (NYSE:MPW), on the other hand, is down -10.81% year to date as of 02/12/2018. It currently trades at $12.29 and has returned 0.49% during the past week.
Sabra Health Care REIT, Inc. (NASDAQ:SBRA) 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. 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.
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect SBRA to grow earnings at a 6.00% annual rate over the next 5 years. Comparatively, MPW is expected to grow at a 6.21% annual rate. All else equal, MPW’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. , compared to an EBITDA margin of 94.51% for Medical Properties Trust, Inc. (MPW).
If there’s one thing investors care more about than earnings, it’s cash flow. SBRA’s free cash flow (“FCF”) per share for the trailing twelve months was -0.23. Comparatively, MPW’s free cash flow per share was -. On a percent-of-sales basis, SBRA’s free cash flow was -0.02% 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.
SBRA’s debt-to-equity ratio is 0.89 versus a D/E of 1.26 for MPW. MPW is therefore the more solvent of the two companies, and has lower financial risk.
SBRA trades at a forward P/E of 9.17, a P/B of 0.56, and a P/S of 9.82, compared to a forward P/E of 11.43, a P/B of 1.17, and a P/S of 6.86 for MPW. 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”. SBRA is currently priced at a -22.89% to its one-year price target of 21.80. Comparatively, MPW is -9.23% relative to its price target of 13.54. 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 2.90 for MPW, which implies that analysts are more bullish on the outlook for MPW.
Risk and Volatility
Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. SBRA has a beta of 0.77 and MPW’s beta is 0.85. SBRA’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.SBRA has a short ratio of 7.29 compared to a short interest of 10.69 for MPW. This implies that the market is currently less bearish on the outlook for SBRA.
Sabra Health Care REIT, Inc. (NASDAQ:SBRA) beats Medical Properties Trust, Inc. (NYSE:MPW) on a total of 8 of the 14 factors compared between the two stocks. SBRA higher liquidity and has lower financial risk. In terms of valuation, SBRA is the cheaper of the two stocks on an earnings and book value, SBRA is more undervalued relative to its price target. Finally, SBRA has better sentiment signals based on short interest.