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Does DiamondRock Portend a Good Value Buying Opportunity?
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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 DiamondRock Hospitality Company (DRH - 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, DiamondRock has a trailing twelve months PE ratio of 11.10, 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 20.08. If we focus on the long-term PE trend, DiamondRock’s current PE level puts it below its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.
Further, the stock’s PE also compares favorably with the Zacks classified REIT And Equity Trust - Other industry’s trailing twelve months PE ratio, which stands at 15.09. At the very least, this indicates that the stock is largely undervalued right now, compared to its peers.
We should also point out that DiamondRock has a forward PE ratio (price relative to this year’s earnings) of 11.91, so it is fair to expect a slight increase in the company’s share price in the near future.
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, DiamondRock has a P/S ratio of about 2.47. This is lower than the S&P 500 average, which comes in at 3.28 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
If anything, this suggests that DiamondRock is witnessing some level of undervalued trading at current levels.
Broad Value Outlook
In aggregate, DiamondRock currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes DiamondRock a decent choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for DiamondRock comes in at 2.35, a level that is comparatively lower than the industry average of 2.86. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, the P/CF ratio (another great indicator of value) comes in at 10.78, which is far better than the industry average of 14.19. Clearly, DiamondRock is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though DiamondRock 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 ‘C’ and a Momentum score of ‘F’. This gives DiamondRock 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 stable. The current quarter has seen no upwards or downward estimate revisions, over last sixty days. On the other hand, the full year estimate has seen one upward and one downward revision in the same time period.
This has resulted in the consensus estimate remaining stable for the current quarter as well as the current year.
You can see the consensus estimate trend and recent price action for the stock in the chart below:
Diamondrock Hospitality Company Price and Consensus
The stock holds a Zacks Rank #3 (Hold), which indicates expectations of an in-line performance from the company in the near term.
Bottom Line
DiamondRock 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 (Bottom 45% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past three years, the Zacks categorized REIT And Equity Trust - Other industry has clearly underperformed the broader market, as you can see below:
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.
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Does DiamondRock Portend a Good Value Buying Opportunity?
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 DiamondRock Hospitality Company (DRH - 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, DiamondRock has a trailing twelve months PE ratio of 11.10, 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 20.08. If we focus on the long-term PE trend, DiamondRock’s current PE level puts it below its midpoint over the past five years. Moreover, the current level is fairly below the highs for this stock, suggesting it might be a good entry point.
Further, the stock’s PE also compares favorably with the Zacks classified REIT And Equity Trust - Other industry’s trailing twelve months PE ratio, which stands at 15.09. At the very least, this indicates that the stock is largely undervalued right now, compared to its peers.
We should also point out that DiamondRock has a forward PE ratio (price relative to this year’s earnings) of 11.91, so it is fair to expect a slight increase in the company’s share price in the near future.
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, DiamondRock has a P/S ratio of about 2.47. This is lower than the S&P 500 average, which comes in at 3.28 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
If anything, this suggests that DiamondRock is witnessing some level of undervalued trading at current levels.
Broad Value Outlook
In aggregate, DiamondRock currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes DiamondRock a decent choice for value investors, and some of its other key metrics make this pretty clear too.
For example, the PEG ratio for DiamondRock comes in at 2.35, a level that is comparatively lower than the industry average of 2.86. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate. Additionally, the P/CF ratio (another great indicator of value) comes in at 10.78, which is far better than the industry average of 14.19. Clearly, DiamondRock is a solid choice on the value front from multiple angles.
What About the Stock Overall?
Though DiamondRock 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 ‘C’ and a Momentum score of ‘F’. This gives DiamondRock 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 stable. The current quarter has seen no upwards or downward estimate revisions, over last sixty days. On the other hand, the full year estimate has seen one upward and one downward revision in the same time period.
This has resulted in the consensus estimate remaining stable for the current quarter as well as the current year.
You can see the consensus estimate trend and recent price action for the stock in the chart below:
Diamondrock Hospitality Company Price and Consensus
Diamondrock Hospitality Company Price and Consensus | Diamondrock Hospitality Company Quote
The stock holds a Zacks Rank #3 (Hold), which indicates expectations of an in-line performance from the company in the near term.
Bottom Line
DiamondRock 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 (Bottom 45% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. In fact, over the past three years, the Zacks categorized REIT And Equity Trust - Other industry has clearly underperformed the broader market, as you can see below:
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.
Just Released – Driverless Cars: Your Roadmap to Mega-Profits Today
In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>