Universal Health Realty Income Trust (NYSE:UHT), a USD$998.07M small-cap, operates in the real estate industry which is the most prevalent industry in the global economy, and as an asset class, it has continued to play a crucial role in the portfolios of various investors. A real estate investment trust (REIT) is a collective vehicle for investing in real estate that originated in the US and has since been taken on board globally. Real estate analysts are forecasting for the entire industry, a positive double-digit growth of 14 percent in the upcoming year, and a whopping growth of 34 percent over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Should your portfolio be overweight in the real estate sector at the moment? Today, I will analyse the industry outlook, as well as evaluate whether UHT is lagging or leading its competitors in the industry. Check out our latest analysis for Universal Health Realty Income Trust
What’s the catalyst for UHT's sector growth?
Issues around rate hikes and yield changes have made investors sceptical of REITs. The capacity for these investment vehicles to absorb a rate hike should be considered, hence, factors such as lease durations and pricing power in the market would require a deeper dive. Over the past year, the industry saw growth in the forties, though still underperforming the wider US stock market. UHT leads the pack with its impressive earnings growth of over 100 percent last year. This proven growth may make UHT a more expensive stock relative to its peers.
Is UHT and the sector relatively cheap?
The REIT sector's PE is currently hovering around 45 times, higher than the rest of the US stock market PE of 27 times. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a lower 11 percent compared to the market’s 16 percent, which may be indicative of past headwinds. On the stock-level, UHT is trading at a lower PE ratio of 23 times, making it cheaper than the average REIT stock. In terms of returns, UHT generated 21 percent in the past year, which is 11 percent over the REIT sector.
What this means for you:
Are you a shareholder? UHT recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. In addition to this, its PE is below its REIT peers, suggesting it is also trading at a relatively cheaper price. Perhaps the market isn’t as bullish of the growth going forward. If your investment thesis of the company hasn’t changed, now may be the right time to accumulate more of UHT, if you’re not already highly concentrated in the stock.
Are you a potential investor? If UHT has been on your watchlist for a while, now may be the best time to enter into the stock. Its industry-beating growth delivered have not been fully accounted for in its shares given its lower PE ratio relative to its peers. But before you make the decision to buy, I recommend you also look at other important fundamentals such as the health of the company, and see whether there is a significant reason why the stock may be trading at a discount in the REIT sector.
For a deeper dive into Universal Health Realty Income Trust's stock, take a look at the company's latest free analysis report to find out more on its financial health and other fundamentals. Interested in other real estate stocks instead? Use our free playform to see my list of over 100 other real estate companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.