Investors with an interest in REIT and Equity Trust - Other stocks have likely encountered both Sunstone Hotel Investors (SHO) and Gaming and Leisure Properties (GLPI). But which of these two companies is the best option for those looking for undervalued stocks? Let's take a closer look.
There are plenty of strategies for discovering value stocks, but we have found that pairing a strong Zacks Rank with an impressive grade in the Value category of our Style Scores system produces the best returns. The Zacks Rank favors stocks with strong earnings estimate revision trends, and our Style Scores highlight companies with specific traits.
Currently, Sunstone Hotel Investors has a Zacks Rank of #2 (Buy), while Gaming and Leisure Properties has a Zacks Rank of #3 (Hold). This system places an emphasis on companies that have seen positive earnings estimate revisions, so investors should feel comfortable knowing that SHO is likely seeing its earnings outlook improve to a greater extent. But this is just one piece of the puzzle for value investors.
Value investors also try to analyze a wide range of traditional figures and metrics to help determine whether a company is undervalued at its current share price levels.
Our Value category highlights undervalued companies by looking at a variety of key metrics, including the popular P/E ratio, as well as the P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that have been used by value investors for years.
SHO currently has a forward P/E ratio of 10.62, while GLPI has a forward P/E of 13.15. We also note that SHO has a PEG ratio of 2.41. This figure is similar to the commonly-used P/E ratio, with the PEG ratio also factoring in a company's expected earnings growth rate. GLPI currently has a PEG ratio of 4.33.
Another notable valuation metric for SHO is its P/B ratio of 1.16. The P/B ratio pits a stock's market value against its book value, which is defined as total assets minus total liabilities. For comparison, GLPI has a P/B of 3.08.
Based on these metrics and many more, SHO holds a Value grade of B, while GLPI has a Value grade of D.
SHO has seen stronger estimate revision activity and sports more attractive valuation metrics than GLPI, so it seems like value investors will conclude that SHO is the superior option right now.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
