DRH or OHI: Which Is the Better Value Stock Right Now?

Investors interested in stocks from the REIT and Equity Trust - Other sector have probably already heard of DiamondRock Hospitality (DRH) and Omega Healthcare Investors (OHI). 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 proven Zacks Rank emphasizes companies with positive estimate revision trends, and our Style Scores highlight stocks with specific traits.

DiamondRock Hospitality has a Zacks Rank of #2 (Buy), while Omega Healthcare Investors has a Zacks Rank of #3 (Hold) right now. Investors should feel comfortable knowing that DRH likely has seen a stronger improvement to its earnings outlook than OHI has recently. But this is only part of the picture 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.

DRH currently has a forward P/E ratio of 9.91, while OHI has a forward P/E of 14.32. We also note that DRH has a PEG ratio of 1.58. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. OHI currently has a PEG ratio of 1.81.

Another notable valuation metric for DRH is its P/B ratio of 1.65. The P/B ratio is used to compare a stock's market value with its book value, which is defined as total assets minus total liabilities. For comparison, OHI has a P/B of 2.5.

These metrics, and several others, help DRH earn a Value grade of B, while OHI has been given a Value grade of C.

DRH is currently sporting an improving earnings outlook, which makes it stick out in our Zacks Rank model. And, based on the above valuation metrics, we feel that DRH is likely the superior value option right now.

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This article originally published on Zacks Investment Research (zacks.com).

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