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?

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 Chatham Lodging Trust (CLDT Quick QuoteCLDT - Free Report) 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, Chatham Lodging has a trailing twelve months PE ratio of 8.27, as you can see in the chart below:



This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 20.04. If we focus on the long-term PE trend, Chatham Lodging’s current PE level puts it below its midpoint over the past five years.



Further, the stock’s PE also compares favorably with the Zacks classified REIT-Equity Trust-Other industry trailing twelve months PE ratio, which stands at 15.41. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.



We should also point out that Chatham Lodging has a forward PE ratio (price relative to this year’s earnings) of 8.84, so it is fair to expect a slight increase in the company’s share price in the near future.

PEG Ratio

While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.

Chatham Lodging’s PEG ratio stands at 2.24, compared with the Zacks REIT-Equity Trust-Other industry average of 2.94. This suggests a decent undervalued trading relative to its earnings growth potential right now.



Broad Value Outlook

In aggregate, Chatham Lodging 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 Chatham Lodging a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the Price/Sales ratio (P/S ratio) for CLDT is 2.53, a level that is far lower than the industry average of 6.46. The P/S ratio compares a given stock’s price to its total sales, where a lower reading is generally considered better. Additionally, its P/CF ratio (another great indicator of value) comes in at 8.19, which is far better than the industry average of 14.31. Clearly, CLDT is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Chatham Lodging 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 CLDT 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 estimate has been mixed at best. The current quarter has seen no upward or downward estimate revision in the past sixty days, while the full year estimate has seen one upward and no downward revisions in the same time frame.

As a result, the current quarter consensus estimate has dropped by 1.5% in the past two months, while the full year estimate has inched higher by 0.5%.You can see the consensus estimate trend and recent price action for the stock in the chart below:

Chatham Lodging Trust (REIT) Price and Consensus

Despite this somewhat mixed trend, the stock has a Zacks Rank #2 (Buy) on the back of its strong value metrics and this is why we are expecting above-average performance from the company in the near-term.

Bottom Line

Chatham Lodging is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Despite having a Zacks Rank #2, the stock belongs to an industry which is ranked among the Bottom 34%(out of more than 250 industries), which indicates that broader factors are unfavorable for the company. In fact, over the past one year, the Zacks REIT-Equity Trust-Other industry has clearly underperformed the broader market, as you can see below:



So, value investors might want to wait for broader factors to turn around in this name first, but once that happens, this stock could be a compelling pick.

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