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Is Medical Properties Trust (MPW) a Good Pick for Value Investors?

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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Medical Properties Trust, Inc. (MPW - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Medical Properties Trust has a trailing twelve months PE ratio of 11.94, as you can see in the chart below:

Zacks Investment Research
Image Source: Zacks Investment Research

This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 25.16. If we focus on the long-term PE trend, Medical Properties Trust’s current PE level puts it above its midpoint (which is 11.92) over the past five years, with the number having risen rapidly over the past few months.

Zacks Investment Research
Image Source: Zacks Investment Research

Further, the stock’s PE also compares favorably with the Zacks Finance sector’s trailing twelve months PE ratio, which stands at 16.47. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

Zacks Investment Research
Image Source: Zacks Investment Research

We should also point out that Medical Properties Trust has a forward PE ratio (price relative to this year’s earnings) of just 11.46, so it is fair to say that a slightly more value-oriented path may be ahead for Medical Properties Trust stock in the near term too.

PEG Ratio

While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.

Medical Properties Trust’s PEG ratio stands at just 1.59, compared with the Zacks REIT and Equity Trust - Other industry average of 3.04. This suggests a decent undervalued trading relative to its earnings growth potential right now.

Zacks Investment Research
Image Source: Zacks Investment Research

Broad Value Outlook

In aggregate, Medical Properties Trust currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes Medical Properties Trust a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Medical Properties Trust is just 1.61, a level that is far lower than the industry average of 2.75. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Clearly, MPW is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Medical Properties Trust might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of D and a Momentum Score of D. This gives MPW a Zacks VGM score — or its overarching fundamental grade — of C. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarter has seen one estimate go higher in the past sixty days compared to one lower, while the full year estimate has seen four up and none down in the same time period.

The consensus estimate in the current quarter did not witness any changes in the past two months, while the full year estimate has inched higher by 0.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

Medical Properties Trust is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among Bottom 36% of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past two years, the Zacks REIT and Equity Trust - Other industry has clearly underperformed the broader market, as you can see below:

Zacks Investment Research
Image Source: Zacks Investment Research

So, value investors might want to wait for estimates and analyst sentiment to turn around in this name first, but once that happens, this stock could be a compelling pick.


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