Comparing Valuation And Performance: RLJ Lodging Trust (RLJ), Avery Dennison Corporation (AVY)

The shares of RLJ Lodging Trust have decreased by more than -7.65% this year alone. The shares recently went up by 1.25% or $0.25 and now trades at $20.29. The shares of Avery Dennison Corporation (NYSE:AVY), has slumped by -18.49% year to date as of 11/08/2018. The shares currently trade at $93.62 and have been able to report a change of 0.58% over the past one week.

The stock of RLJ Lodging Trust and Avery Dennison Corporation were two of the most active stocks on Thursday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: -0.72% versus 13.41%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that RLJ will grow it’s earning at a -0.72% annual rate in the next 5 years. This is in contrast to AVY which will have a positive growth at a 13.41% annual rate. This means that the higher growth rate of AVY implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. RLJ has an EBITDA margin of 30.8%, this implies that the underlying business of RLJ is more profitable. The ROI of RLJ is 2.80% while that of AVY is 17.30%. These figures suggest that AVY ventures generate a higher ROI than that of RLJ.

Cash Flow

The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, RLJ’s free cash flow per share is a positive 2.58, while that of AVY is negative -1.78.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The debt ratio of RLJ is 0.82 compared to 1.78 for AVY. AVY can be able to settle its long-term debts and thus is a lower financial risk than RLJ.


RLJ currently trades at a forward P/E of 22.59, a P/B of 1.13, and a P/S of 2.12 while AVY trades at a forward P/E of 14.16, a P/B of 7.81, and a P/S of 1.15. This means that looking at the earnings, book values and sales basis, RLJ is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions

The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of RLJ is currently at a -14.28% to its one-year price target of 23.67. Looking at its rival pricing, AVY is at a -20.88% relative to its price target of 118.33.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), RLJ is given a 2.30 while 2.00 placed for AVY. This means that analysts are more bullish on the outlook for RLJ stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for RLJ is 3.68 while that of AVY is just 2.04. This means that analysts are more bullish on the forecast for AVY stock.


The stock of RLJ Lodging Trust defeats that of Avery Dennison Corporation when the two are compared, with RLJ taking 6 out of the total factors that were been considered. RLJ happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, RLJ is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for RLJ is better on when it is viewed on short interest.

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