FelCor Lodging Trust Incorporated (NYSE:FCH) and Ashford Hospitality Trust, Inc. (NYSE:AHT) are the two most active stocks in the REIT – Hotel/Motel industry based on today’s trading volumes. We will compare the two companies based on the strength of various metrics, including growth, profitability, risk, return, and valuation to determine if one is a better investment than the other.
One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect FCH to grow earnings at a 10.00% annual rate over the next 5 years. Comparatively, AHT is expected to grow at a 5.00% annual rate. All else equal, FCH’s higher growth rate would imply a greater potential for capital appreciation.
Profitability and Returns
Growth doesn’t mean much if it comes at the cost of weak profitability. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. FelCor Lodging Trust Incorporated (FCH) has an EBITDA margin of 8.58%, compared to an EBITDA margin of 25.13% for Ashford Hospitality Trust, Inc. (AHT). This suggests that AHT underlying business is more profitable. FCH’s ROI is 6.40% while AHT has a ROI of 3.80%. The interpretation is that FCH’s business generates a higher return on investment than AHT’s.
If there’s one thing investors care more about than earnings, it’s cash flow. FCH’s free cash flow (“FCF”) per share for the trailing twelve months was +0.03. Comparatively, AHT’s free cash flow per share was +0.18. On a percent-of-sales basis, FCH’s free cash flow was 0% while AHT converted 1.18% of its revenues into cash flow. This means that, for a given level of sales, AHT is able to generate more free cash flow for investors.
FCH trades at a forward P/E of 359.00, and a P/S of 1.20, compared to a forward P/B of 0.77, and a P/S of 0.40 for AHT. 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”. FCH is currently priced at a -9.11% to its one-year price target of $7.90. Comparatively, AHT is -17.1% relative to its price target of $7.31. This suggests that AHT 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 2.70 for FCH and 2.40 for AHT, which implies that analysts are more bullish on the outlook for FCH.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. FCH has a beta of 1.77 and AHT’s beta is 1.62. AHT’s shares are therefore the less volatile of the two stocks.
Insider Activity and Investor Sentiment
Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. FCH has a short ratio of 0.79 compared to a short interest of 3.68 for AHT. This implies that the market is currently less bearish on the outlook for FCH.
Ashford Hospitality Trust, Inc. (NYSE:AHT) beats FelCor Lodging Trust Incorporated (NYSE:FCH) on a total of 7 of the 10 factors compared between the two stocks. AHT is growing fastly, has higher cash flow per share and has a higher cash conversion rate. AHT is more undervalued relative to its price target. Finally, CTRE has better sentiment signals based on short interest.