Healthpeak Properties, Inc.'s (NYSE:PEAK) Stock Financial Prospects Look Bleak: Should Shareholders Be Prepared For A Share Price Correction?
Healthpeak Properties' (NYSE:PEAK) stock is up by 3.7% over the past month. However, in this article, we decided to focus on its weak financials, as long-term fundamentals ultimately dictate market outcomes. Particularly, we will be paying attention to Healthpeak Properties' ROE today.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.
See our latest analysis for Healthpeak Properties
How Is ROE Calculated?
The formula for return on equity is:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity
So, based on the above formula, the ROE for Healthpeak Properties is:
2.2% = US$161m ÷ US$7.3b (Based on the trailing twelve months to December 2020).
The 'return' is the income the business earned over the last year. So, this means that for every $1 of its shareholder's investments, the company generates a profit of $0.02.
What Is The Relationship Between ROE And Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
A Side By Side comparison of Healthpeak Properties' Earnings Growth And 2.2% ROE
It is hard to argue that Healthpeak Properties' ROE is much good in and of itself. Even when compared to the industry average of 5.0%, the ROE figure is pretty disappointing. Hence, the flat earnings seen by Healthpeak Properties over the past five years could probably be the result of it having a lower ROE.
Next, on comparing with the industry net income growth, we found that Healthpeak Properties' reported growth was lower than the industry growth of 12% in the same period, which is not something we like to see.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). Doing so will help them establish if the stock's future looks promising or ominous. What is PEAK worth today? The intrinsic value infographic in our free research report helps visualize whether PEAK is currently mispriced by the market.
Is Healthpeak Properties Making Efficient Use Of Its Profits?
Healthpeak Properties has a three-year median payout ratio as high as 103% meaning that the company is paying a dividend which is beyond its means. The absence in growth is therefore not surprising. Paying a dividend higher than reported profits is not a sustainable move. That's a huge risk in our books. You can see the 5 risks we have identified for Healthpeak Properties by visiting our risks dashboard for free on our platform here.
In addition, Healthpeak Properties has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Based on the latest analysts' estimates, we found that the company's future payout ratio over the next three years is expected to hold steady at 83%. However, Healthpeak Properties' future ROE is expected to decline to 1.7% despite there being not much change anticipated in the company's payout ratio.
Conclusion
On the whole, Healthpeak Properties' performance is quite a big let-down. Particularly, its ROE is a huge disappointment, not to mention its lack of proper reinvestment into the business. As a result its earnings growth has also been quite disappointing. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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