LaSalle Hotel Properties (NYSE:LHO) shares are up more than 0.11% this year and recently decreased -0.85% or -$0.24 to settle at $28.10. Hersha Hospitality Trust (NYSE:HT), on the other hand, is up 1.49% year to date as of 02/07/2018. It currently trades at $17.66 and has returned -4.80% during the past week.
LaSalle Hotel Properties (NYSE:LHO) and Hersha Hospitality Trust (NYSE:HT) are the two most active stocks in the REIT – Hotel/Motel industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Comparatively, HT is expected to grow at a 27.80% annual rate. All else equal, HT’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth in and of itself is not necessarily valuable, and it can even be harmful to shareholders if companies overinvest in unprofitable projects in pursuit of that growth. We will use EBITDA margin and Return on Investment (ROI), which adjust for differences in capital structure, as measure of profitability and return. , compared to an EBITDA margin of 50.21% for Hersha Hospitality Trust (HT). LHO’s ROI is 5.10% while HT has a ROI of 3.70%. The interpretation is that LHO’s business generates a higher return on investment than HT’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. LHO’s free cash flow (“FCF”) per share for the trailing twelve months was +0.13. Comparatively, HT’s free cash flow per share was -0.14. On a percent-of-sales basis, LHO’s free cash flow was 1.2% while HT converted -0% of its revenues into cash flow. This means that, for a given level of sales, LHO is able to generate more free cash flow for investors.
LHO’s debt-to-equity ratio is 0.45 versus a D/E of 1.22 for HT. HT is therefore the more solvent of the two companies, and has lower financial risk.
LHO trades at a forward P/E of 37.42, a P/B of 1.27, and a P/S of 2.87, compared to a P/B of 0.83, and a P/S of 1.55 for HT. LHO is the expensive of the two stocks on an earnings, book value and sales basis. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock isn’t a good investment if the stock is priced accurately. To get a sense of “value” we must compare the current price to some measure of intrinsic value such as a price target. LHO is currently priced at a 0.04% to its one-year price target of 28.09. Comparatively, HT is -4.23% relative to its price target of 18.44. This suggests that HT is the better investment over the next year.
The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.40 for LHO and 2.70 for HT, which implies that analysts are more bullish on the outlook for LHO.
Risk and Volatility
No discussion on value is complete without taking into account risk. Analysts use a stock’s beta, which measures the volatility of a stock compared to the overall market, to measure systematic risk. A stock with a beta above 1 is more volatile than the market. Conversely, a beta below 1 implies a below average level of risk. LHO has a beta of 1.15 and HT’s beta is 1.36. LHO’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.LHO has a short ratio of 8.03 compared to a short interest of 7.16 for HT. This implies that the market is currently less bearish on the outlook for HT.
Hersha Hospitality Trust (NYSE:HT) beats LaSalle Hotel Properties (NYSE:LHO) on a total of 8 of the 14 factors compared between the two stocks. HT generates a higher return on investment and is more profitable. In terms of valuation, HT is the cheaper of the two stocks on an earnings, book value and sales basis, HT is more undervalued relative to its price target. Finally, HT has better sentiment signals based on short interest.