If you’ve been following me on my journey to grow a small account using only the wheel strategy on Robinhood then you’ll know I just entered into a cash secured put on Medical Properties Trust. If you haven’t been following and want to please take a moment to head over to Youtube and subscribe to my channel.
Prior to entering that trade however, I didn’t do my due diligence and research the company to determine it’s long term viability. Yes, that’s bad practice, and here’s hoping I don’t regret it in the days ahead.
In any case, better late then never is what I’ve always heard so we’ll attempt to create an investment thesis for Medical Properties Trust in today’s post.
Medical Properties is a real estate investment trust that invests, owns, or leases healthcare real estate. For all the specifics you can view the MPW investor relations website.
Searching Google for information seems to suggest mostly positive information as it relates to MPW. Several institutional investors as well as high profile funds are increasing their stake in the company. From the Yahoo Finance page you’ll notice that Medical Properties Trust has a 91 overall investment rating. By comparison, Apple only has a 70 rating, as shown here.
The vast majority of surface level information would lead most to believe that MPW is a great stock to buy now, at this dramatically reduced price. However, we’ve all seen this before so some more digging is in order.
Medical Properties Trust Fundamental Information
Looking at the data for Medical Properties seems to suggest the same result as some rudimentary searching online. That MPW is a great candidate to buy. Using my investment analysis approach, MPW is currently a “Buy” candidate with an acceptable buy price of $33.86. That would be a 400%+ return from it’s current price of $8.25. Something must be wrong, because that just seems too good to be true.
Looking closer, the REIT sector as a whole hasn’t performed well during this bear market so likely that has contributed to Medical Properties decline over the last 2 years. Additionally, sales and earnings per share are also abysmal over the last few quarters, which doesn’t help. Add on the 5 year negative earning per share outlook and it starts to make sense why investors would look elsewhere.
However, should you be looking at MPW for it’s income generation capability like I am then the company starts to make a little more sense. Fundamentally, they seem “stable” (and I use that term loosely in this market) enough to suggest owning a small position, if for nothing more than the lucrative dividend. That said, I know REIT’s are required to distribute the bulk of their earnings to share holders but 230% as a payout ratio really triggers my spidey senses!
Well, to put it simply… It’s not good. The stock is in a two year downtrend with only one “meaningful” rally occurring in the second half of 2022. I quote the meaningful because that rally only gained about 4 points back from the $16 dollar per share decline dating back to January of 2022.
The share price is currently trading near it’s 2008 financial crisis low’s. You remember, that crisis where we all thought the financial system was collapsing! So again, not a great look for Medical Properties Trust.
All in all, I’d say enter this market very carefully. Clearly investors no longer want to hold the stock but from some elementary level analysis I can’t see why. Likely, the growth prospects just aren’t there for this company and that’s led most of the smart money elsewhere. However, investor psychology being what it is, this may just be an extreme over reaction coupled with a poor market environment. Time will tell…
From an income production perspective, I think Medical Properties Trust is possibly best in class. They currently offer a whopping 14% dividend and have great options liquidity. Employing the wheel strategy where puts and calls are sold to generate premium could more than offset the negative future outlook. That said, should this fall much further, I’ll bet that all but disappears.
Take it slow and see what happens.
P.S. If you liked this post you may be interested in another company I’ve been eyeing lately, Taiwan Semiconductor (TSM). Have a look at that post to see what I came up with.