Extended Stay America, Inc. (NYSE:STAY) and Expedia, Inc. (NYSE:EXPE) are both Services companies that recently hit new highs. Many investors are wondering what to do with these names trading at such extreme levels. To determine if one is a better investment than the other, we will compare the two across growth, profitability, risk, return, dividends, and valuation measures.
Extended Stay America, Inc. (NYSE:STAY) operates in the Lodging segment of the Services sector. The company has grown sales at a 6.20% annual rate over the past five years, putting it in the medium growth category. STAY has a net profit margin of 5.80% and is more profitable than the average company in the Lodging industry. In terms of efficiency, STAY has an asset turnover ratio of 0.3. This figure represents the amount of revenue a company generates per dollar of assets. STAY’s financial leverage ratio is 2.82, which indicates that the company’s asset base is primarily funded by debt. Company’s return on equity, which is really just the product of the company’s profit margin, asset turnover, and financial leverage ratios, is 9.10%, which is better than the Lodging industry average ROE.
Extended Stay America, Inc. (STAY) pays out an annual dividend of 0.84 per share. At the current valuation, this equates to a dividend yield of 4.84%. The company has a payout ratio of 198.30%. STAY’s current dividend therefore should be sustainable. Stock’s free cash flow yield, which represents the amount of cash available to investors before dividends, expressed as a percentage of the stock price, is 2.01. All else equal, companies with higher FCF yields are viewed as cheaper. Company trades at a P/E ratio of 44.95, and is less expensive than the average stock in the Lodging industry. The average investment recommendation for STAY, taken from a group of Wall Street Analysts, is 2.20, or a buy.
Over the past three months, Extended Stay America, Inc. insiders have been net buyers, dumping a net of -15,273 shares. This implies that insiders have been feeling relatively bearish about the outlook for STAY. Insider activity and sentiment signals are important to monitor because they can shed light on how “risky” a stock is perceived to be at it’s current valuation. Knowing this, it makes sense to look at beta, a measure of market risk. STAY has a beta of 1.00 and therefore an average level of market volatility.
Expedia, Inc. (NASDAQ:EXPE) operates in the Lodging segment of the Services sector. EXPE has increased sales at a 20.50% CAGR over the past five years, and is considered a high growth stock. The company has a net profit margin of 4.10% and is more profitable than the average Lodging player. EXPE’s asset turnover ratio is 0.55 and the company has financial leverage of 1.19. EXPE’s return on equity of 9.40% is worse than the Lodging industry average.
Expedia, Inc. (EXPE) pays a dividend of 1.20, which translates to dividend yield of 0.99% based on the current price. Stock has a payout ratio of 42.30%. According to this ratio, EXPE should be able to continue making payouts at these levels. The company trades at a free cash flow yield of -3.5 and has a P/E of 47.66. Compared to the average company in the 59.93 space, EXPE is relatively cheap. The average analyst recommendation for EXPE is 2.00, or a buy.
Expedia, Inc. insiders have sold a net of -353,742 shares during the past three months, which implies that the company’s top executives have been feeling bearish about the stock’s outlook. Finally, EXPE’s beta of 0.90 indicates that the stock has an average level of market risk.
Extended Stay America, Inc. (NASDAQ:EXPE) scores higher than Expedia, Inc. (NYSE:STAY) on 8 of the 13 measures compared between the two companies. EXPE has the better fundamentals, scoring higher on growth, efficiency, leverage and return metrics.