Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is Medical Properties Trust (MPW, Financial). The stock, which is currently priced at 5.26, recorded a gain of 6.26% in a single day and a 3-month decrease of 43.58%. The stock's fair valuation is $19.27, as indicated by its GF Value.
A Brief Overview of GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. If the stock price 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.
Unraveling the Risks
Despite its seemingly attractive valuation, certain risk factors associated with Medical Properties Trust should not be ignored. These risks are primarily reflected through its low Altman Z-score of 0.27. These indicators suggest that Medical Properties Trust, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Understanding the Altman Z-Score
Before delving into the details, let's understand what the Altman Z-score entails. Invented by New York University Professor Edward I. Altman in 1968, the Z-Score is a financial model that predicts the probability of a company entering bankruptcy within a two-year time frame. The Altman Z-Score combines five different financial ratios, each weighted to create a final score. A score below 1.8 suggests a high likelihood of financial distress, while a score above 3 indicates a low risk.
Company Snapshot
Medical Properties Trust Inc is a healthcare facility REIT. The company operates one segment, which owns and leases healthcare facilities. The vast majority of Medical's revenue is generated in the United States, followed by Germany and the United Kingdom. The company considers merger and acquisition investment as a component of its operational growth strategy. It provides financing for a variety of facilities that require funds for acquisitions, sale-leasebacks, new developments, and expansion projects.
Medical Properties Trust's Low Altman Z-Score: A Breakdown of Key Drivers
A dissection of Medical Properties Trust's Altman Z-score reveals Medical Properties Trust's financial health may be weak, suggesting possible financial distress.
Conclusion: A Potential Value Trap
Despite the apparent undervaluation, the low Altman Z-Score indicates potential financial distress, making Medical Properties Trust a possible value trap. Investors should consider these risks before making an investment decision.
GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
