Ventas shares fell by -1.2% during the day's afternoon session, and are now trading at a price of $44.87. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Ventas Inc., an S&P 500 company, operates at the intersection of two large and dynamic industries healthcare and real estate. The company belongs to the Real Estate sector, which has an average price to earnings (P/E) ratio of 24.81 and an average price to book (P/B) ratio of 2.24. In contrast, Ventas has a trailing 12 month P/E ratio of -299.1 and a P/B ratio of 1.79.
When we divide Ventas's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -14.62. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
The Business Is Unprofitable and Its Balance Sheet Is Highly Leveraged:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $3,873 | $3,795 | $3,828 | $4,129 |
| Operating Margins | 22.0% | 15.6% | 11.0% | 11.7% |
| Net Margins | 11.18% | 11.57% | 1.28% | -1.15% |
| Net Income (MM) | $433 | $439 | $49 | -$47 |
| Net Interest Expense (MM) | -452 | -470 | -440 | -468 |
| Net Interest Expense (MM) | -$452 | -$470 | -$440 | -$468 |
| Depreciation & Amort. (MM) | -$1,069 | -$1,130 | -$1,215 | -$1,198 |
| Earnings Per Share | $1.17 | $1.17 | $0.13 | -$0.15 |
| EPS Growth | n/a | 0.0% | -88.89% | -215.38% |
| Diluted Shares (MM) | 370 | 377 | 386 | 400 |
| Free Cash Flow (MM) | $877 | $922 | $593 | $666 |
| Capital Expenditures (MM) | -$561 | -$529 | -$433 | -$454 |
| Net Current Assets (MM) | -$13,205 | -$12,584 | -$13,017 | -$13,183 |
| Current Ratio | 0.75 | 0.85 | 0.63 | 0.66 |
| Long Term Debt (MM) | $12,159 | $11,895 | $12,028 | $12,297 |
| Net Debt / EBITDA | 6.8 | 6.01 | 7.15 | 7.87 |
Ventas has weak operating margins with a negative growth trend, declining EPS growth, and a highly leveraged balance sheet. On the other hand, the company has consistent free cash flow working in its favor. Furthermore, Ventas has stable revenues and decreasing reinvestment in the business.
