Investors interested in stocks from the REIT and Equity Trust - Other sector have probably already heard of Sunstone Hotel Investors (SHO) and EastGroup Properties (EGP). 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.
Sunstone Hotel Investors has a Zacks Rank of #2 (Buy), while EastGroup Properties has a Zacks Rank of #3 (Hold) right now. This means that SHO's earnings estimate revision activity has been more impressive, so investors should feel comfortable with its improving analyst outlook. 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.
The Value category of the Style Scores system identifies undervalued companies by looking at a number of key metrics. These include the long-favored P/E ratio, P/S ratio, earnings yield, cash flow per share, and a variety of other fundamentals that help us determine a company's fair value.
SHO currently has a forward P/E ratio of 12.17, while EGP has a forward P/E of 20.25. We also note that SHO has a PEG ratio of 2.81. This popular metric is similar to the widely-known P/E ratio, with the difference being that the PEG ratio also takes into account the company's expected earnings growth rate. EGP currently has a PEG ratio of 2.93.
Another notable valuation metric for SHO is its P/B ratio of 1.35. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. By comparison, EGP has a P/B of 2.92.
These are just a few of the metrics contributing to SHO's Value grade of B and EGP's Value grade of D.
SHO stands above EGP thanks to its solid earnings outlook, and based on these valuation figures, we also feel that SHO is the superior value option right now.
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Sunstone Hotel Investors, Inc. (SHO): Free Stock Analysis Report
EastGroup Properties, Inc. (EGP): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).