Stock Analysis

Do CareTrust REIT's (NASDAQ:CTRE) Earnings Warrant Your Attention?

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NYSE:CTRE
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Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

In contrast to all that, I prefer to spend time on companies like CareTrust REIT (NASDAQ:CTRE), which has not only revenues, but also profits. While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

See our latest analysis for CareTrust REIT

How Fast Is CareTrust REIT Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, CareTrust REIT has grown EPS by 29% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away winners.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. I note that, last year, CareTrust REIT's revenue from operations was lower than its revenue, so that could distort my analysis of its margins. The good news is that CareTrust REIT is growing revenues, and EBIT margins improved by 3.3 percentage points to 58%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NasdaqGS:CTRE Earnings and Revenue History May 29th 2021

While we live in the present moment at all times, there's no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for CareTrust REIT?

Are CareTrust REIT Insiders Aligned With All Shareholders?

I like company leaders to have some skin in the game, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. As a result, I'm encouraged by the fact that insiders own CareTrust REIT shares worth a considerable sum. Indeed, they hold US$43m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 1.9% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Is CareTrust REIT Worth Keeping An Eye On?

You can't deny that CareTrust REIT has grown its earnings per share at a very impressive rate. That's attractive. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. It is worth noting though that we have found 2 warning signs for CareTrust REIT that you need to take into consideration.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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What are the risks and opportunities for CareTrust REIT?

CareTrust REIT, Inc. is a self-administered, publicly-traded real estate investment trust engaged in the ownership, acquisition, development and leasing of skilled nursing, seniors housing and other healthcare-related properties.

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Rewards

  • Trading at 38.6% below our estimate of its fair value

  • Earnings are forecast to grow 108.22% per year

Risks

  • Debt is not well covered by operating cash flow

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