Shares of Medical Properties Trust MPW — also known as MPT — have declined 3.1% over the past three months. This decline was against the Zacks REIT and Equity Trust - Other industry’s growth of 5.6% and the S&P 500 composite’s rise of 5.3% over the same time frame.

This Birmingham, AL-based healthcare REIT has recently been the subject of allegations made by short-sellers. However, this month, the company’s board released the findings of an independent investigation that revealed no improper practices or management misconduct.

Industry heavyweights like Ventas VTR and Healthpeak Properties DOC have surpassed this healthcare real estate investment trust’s (REIT) performance in the same period.

Three-Months Price Performance

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With MPW underperforming, individuals may rush to sell the stock from their portfolio or look for a favorable entry point. However, before making any hasty decision, it would be prudent to consider the risks of investing in the stock, as well as its growth prospects. The idea is to help investors make a more insightful decision.

Key Factors Behind MPW Stock Price Volatility

Medical Properties faced allegations from short sellers, particularly regarding MPT transactions involving Steward Healthcare. However, this month, MPW’s board released the findings of an independent investigation into these allegations, concluding that there was no evidence that Medical Properties compensates its operator-tenants excessively for real estate, nor were there any signs of improper round-tripping or improper recognition of "uncollectible" rent through GAAP-mandated straight-line revenue recognition.

The board also concluded that neither MPW nor Manolete Health possesses any ownership interest in any Malta property or hospital. Additionally, there was no evidence to suggest that management engaged in manipulation of acquisitions or other metrics to achieve compensation targets.

Moreover, earlier this month, Medical Properties’ director Michael G. Stewart sold 32,780 shares of the company’s stock in a transaction. Even though the stock sale isn’t a major fraction of the company's total outstanding shares, but for any individual, it's a meaningful stake. Investors are in a search of positive news, and the sale of more than 32,000 shares does not adequately fulfill that need.

To better align with the company’s cash flow profile following asset divestitures, in August 2024, Medical Properties announced a quarterly cash dividend of 8 cents per share, reflecting a reduction of 46.7% from the prior payment. The dividend was paid out on Oct. 10, to shareholders on record as of Sept. 9, 2024. Solid dividend payouts are arguably the biggest enticements for REIT shareholders and therefore this dividend cut is not encouraging for the investors.

Analysts also seem to have a bearish outlook, with the Zacks Consensus Estimate for Medical Properties’ 2024 and 2025 funds from operation (FFO) per share being revised downward in the past two months.

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MPW’s Valuation

MPW is currently trading at a discount to its industry benchmarks. The stock has a forward 12-month price-to-FFO, which is a commonly used multiple for valuing healthcare REITs, of 5.89X, significantly below the industry average of 16.77X. Its forward 12-month price-to-FFO is ahead of its median of 4.14X and close to its one-year high of 7.46X.

Although Medical Properties’ stock is currently trading at a discount compared to its industry peers, this valuation disparity might not be as favorable as it seems. The lower price could be indicative of underlying issues rather than representing a clear investment opportunity.

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Wrapping-Up

Although the favorable fundamentals of the healthcare real estate industry, capital recycling and balance-sheet strengthening efforts, and termination of relationship with Steward Health Care System are encouraging, MPW’s stock sale news and dividend pay cuts have made us adopt bearish view. Also, analysts’ southward revision of FFO estimates echoes similar sentiments.

Hence, new investors may want to steer clear of this Zacks Rank #5 (Strong Sell) stock for the time being. Investors who have held MPW for an extended period may consider locking in profits at this point, as the company's near-term challenges discussed earlier are worrisome and present uncertain prospects, which could lead to a further decline in the stock's price.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Ventas, Inc. (VTR) : Free Stock Analysis Report

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