Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
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One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Hospitality Properties Trust HPT stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Hospitality Properties has a trailing twelve months PE ratio of 8.1, as you can see in the chart below:
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This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 compares in at about 21.7. If we focus on the stock’s long-term PE trend, the current level puts Hospitality Properties’ current PE ratio tad below its midpoint over the past five years.
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Further, the stock’s PE also compares favorably with its industry’s trailing twelve months PE ratio, which stands at 16. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
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We should also point out that Hospitality Properties has a forward PE ratio (price relative to this year’s earnings) of just 7.9, so it is fair to say that a slightly more value-oriented path may be ahead for the stock in the near term too.
P/S Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Hospitality Properties has a P/S ratio of about 2.3. This is lower than the industry average, which comes in at 7 right now.
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If anything, this suggests some level of undervalued trading—at least compared to historical norms.
Broad Value Outlook
In aggregate, Hospitality Properties currently has a Zacks Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes Hospitality Properties a solid choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for Hospitality Properties is just 1.6, a level that is lower than the industry average of 2.8. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
Additionally, its P/CF ratio (another great indicator of value) comes in at 8.3, which is far better than the industry average of 13. Clearly, HPT is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though Hospitality Properties might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of D and a Momentum score of D. This gives HPT a Zacks VGM score—or its overarching fundamental grade—of C. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been mixed at best. The current quarer have witnessed two upward estimate revisions, compared to four downward revision over the last two months and the full year have witnessed four upward estimate revisions, compared to one downward revision over the last two months.
As a result, the current quarter consensus estimate decreased 1.9% in the past two months, while the full year estimate has inched up by 0.8%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Hospitality Properties Trust Price and Consensus
This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.
Bottom Line
Hospitality Properties is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. However, with a sluggish industry rank (among bottom 26%) it is hard to get too excited about this company overall.
In fact, over the past two years, its industry has clearly underperformed the broader market, as you can see below:
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So, value investors might want to wait for estimates, analyst sentiment and broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.
Zacks Editor-in-Chief Goes "All In" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
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