Omega Healthcare Dropped: What You Need to Know (OHI)

Omega Healthcare Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Healthcare REIT Omega Healthcare Investors (NYSE: OHI ) dropped as much as 13% in Monday trading, hurt by fears that the "grand compromise" Washington has worked out to solve the debt mess will result in Medicare cuts and rob Omega of profits.

So what: It's never easy investing in an industry where government can upend profit margins with the twist of a legislative pen, and Omega investors are getting a taste of that uncertainty today. The saddest part, though, is that they probably never should have been in the stock in the first place.

Now what: I mean, just look at these numbers. Omega costs 88 times earnings. That's a pretty high price to pay for the privilege of collecting an 8.1% dividend.

Now, Omega has a 9 times forward P/E ratio, true, but is only pegged for 5% long-term growth. Again, I don't think there's a whole lot of "reward" here for investors who take a risk on Omega. Long story short, the stock was expensive to begin with. It had regulatory risks that investors weren't being compensated for taking -- and now those risks have come home to roost.

My advice: Take your lumps, and consider it tuition paid for an investing lesson learned.

Want more info on Omega Healthcare Investors? Add the stock to your Fool Watchlist.

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Fool contributor Rich Smith does not own (or short) shares of Omega Healthcare Investors. The Motley Fool has a disclosure policy. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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