Earnings

Dissecting the Numbers for Extended Stay America, Inc. (STAY) and Expedia, Inc. (EXPE)

Extended Stay America, Inc. (NYSE:STAY) shares are up more than 6.50% this year and recently increased 0.29% or $0.05 to settle at $17.20. Expedia, Inc. (NASDAQ:EXPE), on the other hand, is up 4.78% year to date as of 12/12/2017. It currently trades at $118.69 and has returned -1.72% during the past week.

Extended Stay America, Inc. (NYSE:STAY) and Expedia, Inc. (NASDAQ:EXPE) are the two most active stocks in the Lodging 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.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect STAY to grow earnings at a 1.58% annual rate over the next 5 years. Comparatively, EXPE is expected to grow at a 16.92% annual rate. All else equal, EXPE’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return., compared to an EBITDA margin of 15.1% for Expedia, Inc. (EXPE). STAY’s ROI is 8.80% while EXPE has a ROI of 6.00%. The interpretation is that STAY’s business generates a higher return on investment than EXPE’s.

Cash Flow 




The amount of free cash flow available to investors is ultimately what determines the value of a stock. STAY’s free cash flow (“FCF”) per share for the trailing twelve months was +0.35. Comparatively, EXPE’s free cash flow per share was -4.17. On a percent-of-sales basis, STAY’s free cash flow was 5.3% while EXPE converted -7.24% of its revenues into cash flow. This means that, for a given level of sales, STAY is able to generate more free cash flow for investors.

Liquidity and Financial Risk

STAY’s debt-to-equity ratio is 2.98 versus a D/E of 0.92 for EXPE. STAY is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

STAY trades at a forward P/E of 16.91, a P/B of 3.87, and a P/S of 2.60, compared to a forward P/E of 21.90, a P/B of 3.92, and a P/S of 1.84 for EXPE. 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

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. STAY is currently priced at a -14.56% to its one-year price target of 20.13. Comparatively, EXPE is -22.07% relative to its price target of 152.31. This suggests that EXPE 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 2.20 for STAY and 2.10 for EXPE, which implies that analysts are more bullish on the outlook for STAY.

Risk and Volatility

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. STAY has a beta of 0.97 and EXPE’s beta is 0.90. EXPE’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. STAY has a short ratio of 1.56 compared to a short interest of 4.67 for EXPE. This implies that the market is currently less bearish on the outlook for STAY.

Summary

Expedia, Inc. (NASDAQ:EXPE) beats Extended Stay America, Inc. (NYSE:STAY) on a total of 7 of the 14 factors compared between the two stocks. EXPE is more profitable, higher liquidity and has lower financial risk. EXPE is more undervalued relative to its price target. Finally, AAL has better sentiment signals based on short interest.

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