LaSalle Hotel Properties (NYSE:LHO), on the other hand, is down -10.37% year to date as of 02/26/2018. It currently trades at $25.16 and has returned -12.15% during the past week.
Parsley Energy, Inc. (NYSE:PE) and LaSalle Hotel Properties (NYSE:LHO) are the two most active stocks in the market based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.
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 30.05% for LaSalle Hotel Properties (LHO). PE’s ROI is 0.40% while LHO has a ROI of 4.10%. The interpretation is that LHO’s business generates a higher return on investment than PE’s.
Cash is king when it comes to investing. PE’s free cash flow (“FCF”) per share for the trailing twelve months was -1.06. Comparatively, LHO’s free cash flow per share was +0.13. On a percent-of-sales basis, PE’s free cash flow was -0.07% while LHO converted 1.2% 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.
Liquidity and Financial Risk
PE’s debt-to-equity ratio is 0.32 versus a D/E of 0.45 for LHO. LHO is therefore the more solvent of the two companies, and has lower financial risk.
PE trades at a forward P/E of 13.23, a P/B of 1.40, and a P/S of 8.14, compared to a forward P/E of 42.29, a P/B of 1.15, and a P/S of 2.57 for LHO. PE is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. 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. PE is currently priced at a -30.61% to its one-year price target of 37.77. Comparatively, LHO is -1.83% relative to its price target of 25.63. This suggests that PE 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 1.90 for PE and 3.40 for LHO, which implies that analysts are more bullish on the outlook for LHO.
Risk and Volatility
Beta is a metric that investors frequently use to analyze a stock’s systematic risk. A beta above 1 implies above average market volatility. Conversely, a stock with a beta below 1 is seen as less risky than the overall market. PE has a beta of -0.38 and LHO’s beta is 1.30. PE’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. PE has a short ratio of 2.19 compared to a short interest of 5.82 for LHO. This implies that the market is currently less bearish on the outlook for PE.
Parsley Energy, Inc. (NYSE:PE) beats LaSalle Hotel Properties (NYSE:LHO) on a total of 8 of the 14 factors compared between the two stocks. PE is more profitable, higher liquidity and has lower financial risk. PE is more undervalued relative to its price target. Finally, PE has better sentiment signals based on short interest.