Why Are Analysts Bullish on Healthpeak Properties (PEAK)?

With an average analyst rating of buy, Healthpeak Properties is clearly an analyst favorite. But the analysts could be wrong. Is PEAK overvalued at today's price of $26.5? Let's take a closer look at the fundamentals to find out.

The first step in determining whether a stock is overvalued is to check its price to book (P/B) ratio. This is perhaps the most basic measure of a company's valuation, which is its market value divided by its book value. Book value refers to the sum of all of the company's tangible assets minus its liabilities -- you can also think of it as the company's liquidation value.

Traditionally, value investors would look for companies with a ratio of less than 1 (meaning that the market value was smaller than the company's book value), but such opportunities are very rare these days. So we tend to look for company's whose valuations are less than their sector and market average. The P/B ratio for Healthpeak Properties is 2.2, compared to its sector average of 2.39 and the S&P 500's average P/B of 2.95.

Modernly, the most common metric for valuing a company is its Price to Earnings (P/E) ratio. It's simply today's stock price of 26.5 divided by either its trailing or forward earnings, which for Healthpeak Properties are $0.97 and $0.47 respectively. Based on these values, the company's trailing P/E ratio is 27.3 and its forward P/E ratio is 56.4. By way of comparison, the average P/E ratio of the Real Estate sector is 27.16 and the average P/E ratio of the S&P 500 is 15.97.

If a company is overvalued in terms of its earnings, we also need to check if it has the ability to meet its financial obligations. One way to check this is via the so called Quick Ratio or Acid Test, which is the sum of its current assets, inventory, and prepaid expenses divided by its current liabilities. Healthpeak Properties's Quick ratio is 0.105, which indicates that that it does not have the liquidity necessary to meet its current liabilities.

One last metric to check out is Healthpeak Properties's free cash flow of $795,248,000.00. This represents the total sum of all the company's inflows and outflows of capital, including the costs of servicing its debt. It's the final bottom line of the company, which it can use to re-invest or to pay its investors a dividend. With such healthy cash flows, investors can expect Healthpeak Properties to keep paying its 4.5% dividend.

Shares of Healthpeak Properties appear to be overvalued at today's prices — despite the positive outlook from analysts. But sometimes stocks with inflated valuations turn out to be strong performances for years, and even decades, such as Amazon. So be sure to do your own due diligence if you are interested in taking a long position in PEAK.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.