If you want access to the real estate sector but don’t want to roll up your sleeves and manage properties yourself, Ventas [VTR] is a publicly traded real estate investment trust that has grown since inception in 1983 to have a multi-billion dollar market capitalization.
Ventas operates across the United States and Canada, and focuses mostly on healthcare facilities, such as hospitals, senior housing centers, nursing facilities, and medical office buildings.
Not only does the company finance and lease properties in the healthcare industry but it also invests in and manages properties too.
So what does the future hold for this real estate investment management company with approximately 500 employees? Let’s find out in this Ventas stock forecast article that dives into key valuation measures and much more.
Table of Contents
Ventas Stock Forecast: P/E Ratio
When you compare share prices of one company to another, you don’t gain much insight into whether a company is overvalued or undervalued. So how do you make an accurate Ventas stock forecast?
Each company will have a different number of shares outstanding so a stock with a higher price point may have a lower market capitalization than a stock with a lower price point if the second stock has more shares outstanding.
P/E Ratio is a better metric to conduct a like-for-like comparison.
When you examine the Ventas P/E ratio, the absolute number is less important than how it fares compared to competitors, such as Welltower, Omega Healthcare, and Healthcare Realty.
A lower P/E ratio than its peers suggest that Ventas stock may be undervalued because it is generating more earnings per share for its price level than its rivals.
However, low price-earnings ratios are not sufficient to know whether Ventas stock is a buy or a sell.
It is possible that a Ventas P/E ratio is low because the share price has fallen significantly for some fundamental reason which is worth uncovering. For example, when a CEO departs, a stock often takes a tumble when shareholders have previously held the CEO in high regard.
Equally, high P/E ratios are not necessarily indicative of a stock being overvalued. It’s possible that a high Ventas price-earnings ratio is warranted because a company has significant earnings growth potential.
For the Ventas REIT, it is unusual to trade at very lofty P/E multiples that discount high growth rates, unlike technology stocks such as Facebook, Netflix, and Google, which have scalable technologies that can facilitate faster growth.
If growing earnings is the key to increasing value over time, a key metric to observe is earnings growth over time.
We can observe the Ventas earnings per share forecast and see that, as expected, a slow and steady pace is expected in the future.
When Ventas revenues grow faster than costs, we expect its earnings per share over time to increase.
And conversely, declining earnings can be impacted by higher costs relative to revenue levels.
In this chart, we can see how historical revenues for Ventas have trended:
When revenues have grown significantly, you should pay attention to the driving forces behind the growth.
Even if revenues are fairly steady over time, you should know whether they have been driven by higher rent yields or accelerated by the company taking on more debt to boost top line figures.
Real estate companies generally manage significant debt levels so it is important to measure the Debt to Total Capital ratio.
A company with extremely high debt levels may find it difficult to pay back its borrowings on variable rate loans if a series of Fed rate hikes were to occur.
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Return on Invested Capital, or ROIC, is the percentage return that a company makes over its invested capital.
It is a commonly used ratio in finance and valuation to measure the profitability and value-creating potential of a company, and ultimately to make a Ventas stock forecast.
ROIC is among the most important financial metrics that any investor can use to assess how well a company creates value and sustains value creation over time.
You can also use Enterprise Value and Earnings Before Interest Taxes Depreciation and Amortization or EBITDA to measure valuation using the ratio EV/EBITDA.
It is commonly used as a replacement for the more conventional P/E ratio and can be used together with P/E to gauge the fair market value of a company.
Ventas Fair Value Estimate
A fair value estimate can be arrived for Ventas by examining key models, including:
- 5 year DCF EBITDA Exit
- 5 year DCF Revenue Exit
- 10 year DCF EBITDA Exit
- 10 year DCF Revenue Exit
- EBITDA Multiples
- Revenue Multiples
- Dividends: Stable Growth
- Dividends: Multi-stage
- P/E Multiples
By combining these models, we find the average Ventas fair value estimate:
For a snapshot view of whether Ventas is overvalued or undervalued, you can view how far the share price is from fair value:
Ventas Stock Price Chart
(VTR Stock Quote)
The 10-year Ventas price chart shows historically how the stock price has trended over the past decade:
More recently, we can see how the Ventas share price has trended over the past year.
Ventas Stock Forecast: WACC
If you are a valuation expert, the Ventas weighted average cost of capital, or WACC, is another key metric to pay close attention to and is displayed below for convenience.