Ashford Hospitality Prime, Inc. (NYSE:AHP) and Chatham Lodging Trust (NYSE:CLDT) are the two most active stocks in the REIT – Hotel/Motel industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.
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. Ashford Hospitality Prime, Inc. (AHP) has an EBITDA margin of 27.56%, compared to an EBITDA margin of 17.33% for Chatham Lodging Trust (CLDT). This suggests that AHP underlying business is more profitable. AHP’s ROI is 4.00% while CLDT has a ROI of 4.70%. The interpretation is that CLDT’s business generates a higher return on investment than AHP’s.
The amount of free cash flow available to investors is ultimately what determines the value of a stock. AHP’s free cash flow (“FCF”) per share for the trailing twelve months was +0.20. Comparatively, CLDT’s free cash flow per share was +0.05. On a percent-of-sales basis, AHP’s free cash flow was 0% while CLDT converted 0% of its revenues into cash flow. This means that, for a given level of sales, AHP is able to generate more free cash flow for investors.
Liquidity and Financial Risk
Liquidity and leverage ratios measure a company’s ability to meet short-term obligations and longer-term debts. AHP’s debt-to-equity ratio is 2.46 versus a D/E of 0.84 for CLDT. AHP is therefore the more solvent of the two companies, and has lower financial risk.
AHP trades at a forward P/E of 30.16, a P/B of 0.81, and a P/S of 0.75, compared to a forward P/E of 26.07, a P/B of 1.13, and a P/S of 2.72 for CLDT. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
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. AHP has a beta of 1.20 and CLDT’s beta is 1.05. CLDT’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. AHP has a short ratio of 1.96 compared to a short interest of 3.70 for CLDT. This implies that the market is currently less bearish on the outlook for AHP.
Ashford Hospitality Prime, Inc. (NYSE:AHP) beats Chatham Lodging Trust (NYSE:CLDT) on a total of 5 of the 10 factors compared between the two stocks. AHP is more profitable and has higher cash flow per share. In terms of valuation, AHP is the cheaper of the two stocks on book value and sales basis, Finally, AHP has better sentiment signals based on short interest.