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 Extended Stay America, Inc. 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, Extended Stay has a trailing twelve months PE ratio of 17.27, 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 20.49. If we focus on the long-term PE trend, Extended Stay’s current PE level puts it below its midpoint over the past three years.



Further, the stock’s PE also compares favorably with the Zacks classified Hotels and Motels industry’s trailing twelve months PE ratio, which stands at 22.77. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.


 
We should also point out that Extended Stay has a forward PE ratio (price relative to this year’s earnings) of just 17.26, which is roughly in line with the current level. Hence the forward earnings estimates are already incorporated in the company’s current share price.

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, Extended Stay has a P/S ratio of about 2.68. This is lower than the S&P 500 average, which comes in at 3.11 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.



Broad Value Outlook

In aggregate, Extended Stay 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 Extended Stay a good choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the P/CF ratio (another great indicator of value) comes in at 8.47, which is far better than the industry average of 13.21. Clearly, STAY is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Extended Stay 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 STAY 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 mixed at best. The current quarter has seen no upward estimate revision in the past sixty days compared to two downward, while the full year estimate has seen three upward and three downward revisions in the same time frame.

As a result, the current quarter consensus estimate has dropped by 20% in the past two months, while the full year estimate has inched higher by 1%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Extended Stay America, Inc. Price and Consensus

This somewhat mixed trend is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term. This indicates that while the stock’s growth story might be good over the long term, analysts have some apprehensions about the stock in the immediate future.

Bottom Line

Extended Stay is an inspired choice for value investors, as it is hard to beat its good lineup of statistics on this front. However, with a sluggish industry rank (Bottom 29% out of more than 250 industries) and a Zacks Rank #3, it is hard to get too excited about this company overall. Infact, over the past one year, the Zacks Hotels & Motels industry has underperformed the broader market, as you can see below:



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

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