Omega Healthcare Investors Inc (OHI, Financial) experienced a daily loss of 6.55%, and a 3-month gain of 2.68%. With an Earnings Per Share (EPS) of 1.02, the question arises: Is the stock modestly overvalued? This article aims to provide an in-depth analysis of Omega Healthcare Investors' valuation, based on its Earnings Per Share (EPS) and other significant financial metrics.
Company Overview
Omega Healthcare Investors Inc is a healthcare facility real estate investment trust (REIT) that primarily invests in the U.S. real estate markets. The company's portfolio is heavily focused on long-term healthcare facilities. With a dual objective of increasing returns to investors while maintaining a high level of care for residents, Omega Healthcare Investors Inc works to secure contractual rent escalations under long-term leases, along with fixed-rate mortgage loans. The company also considers mergers and acquisitions as a component of its operational growth strategy.
With a current stock price of $31.52 and a market cap of $7.70 billion, the question of whether Omega Healthcare Investors is overvalued can be answered by comparing its stock price with its GF Value, an estimation of the stock's fair value.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value.
Omega Healthcare Investors' stock appears to be modestly overvalued, according to GuruFocus Value calculation. This valuation is based on the historical multiples that the stock has traded at, past business growth, and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return is likely to be higher.
Given that Omega Healthcare Investors is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, a company's financial strength must be carefully reviewed before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. Omega Healthcare Investors has a cash-to-debt ratio of 0.07, which ranks worse than 50.21% of 725 companies in the REITs industry. Based on this, GuruFocus ranks Omega Healthcare Investors' financial strength as 4 out of 10, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Omega Healthcare Investors has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $852.70 million and Earnings Per Share (EPS) of $1.02. Its operating margin is 41.36%, which ranks worse than 64.29% of 686 companies in the REITs industry. Overall, GuruFocus ranks the profitability of Omega Healthcare Investors at 7 out of 10, which indicates fair profitability.
One significant factor in the valuation of a company is its growth. Long-term stock performance is closely correlated with growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Omega Healthcare Investors is -4.9%, which ranks worse than 74.92% of 634 companies in the REITs industry. The 3-year average EBITDA growth is 2.2%, which ranks better than 52.43% of 536 companies in the REITs industry.
ROIC vs. WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, ROIC should be higher than WACC. For the past 12 months, Omega Healthcare Investors' ROIC is 3.93, and its WACC is 8.17.
Conclusion
In conclusion, the stock of Omega Healthcare Investors shows every sign of being modestly overvalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks better than 52.43% of 536 companies in the REITs industry. To learn more about Omega Healthcare Investors stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
