Sunstone Hotel Investors (NYSE: STAY) and Extended Stay America (NYSE:STAY) are both mid-cap finance companies, but which is the better investment? We will compare the two companies based on the strength of their analyst recommendations, risk, profitability, dividends, valuation, institutional ownership and earnings.

Profitability

This table compares Sunstone Hotel Investors and Extended Stay America’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Sunstone Hotel Investors 10.08% 4.26% 2.73%
Extended Stay America 5.47% 15.18% 4.97%

Insider and Institutional Ownership

96.7% of Extended Stay America shares are owned by institutional investors. 0.8% of Sunstone Hotel Investors shares are owned by company insiders. Comparatively, 0.7% of Extended Stay America shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Volatility and Risk

Sunstone Hotel Investors has a beta of 1.03, meaning that its share price is 3% more volatile than the S&P 500. Comparatively, Extended Stay America has a beta of 0.96, meaning that its share price is 4% less volatile than the S&P 500.

Analyst Ratings

This is a breakdown of recent ratings and recommmendations for Sunstone Hotel Investors and Extended Stay America, as provided by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Sunstone Hotel Investors 1 6 2 0 2.11
Extended Stay America 0 0 9 0 3.00

Sunstone Hotel Investors currently has a consensus price target of $16.64, suggesting a potential upside of 0.14%. Extended Stay America has a consensus price target of $22.83, suggesting a potential upside of 15.03%. Given Extended Stay America’s stronger consensus rating and higher probable upside, analysts clearly believe Extended Stay America is more favorable than Sunstone Hotel Investors.

Earnings and Valuation

This table compares Sunstone Hotel Investors and Extended Stay America’s revenue, earnings per share and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Sunstone Hotel Investors $1.19 billion 3.18 $145.37 million $1.22 13.62
Extended Stay America $1.28 billion 2.92 $78.84 million $1.00 19.85

Sunstone Hotel Investors has higher earnings, but lower revenue than Extended Stay America. Sunstone Hotel Investors is trading at a lower price-to-earnings ratio than Extended Stay America, indicating that it is currently the more affordable of the two stocks.

Dividends

Sunstone Hotel Investors pays an annual dividend of $0.20 per share and has a dividend yield of 1.2%. Extended Stay America pays an annual dividend of $0.88 per share and has a dividend yield of 4.4%. Sunstone Hotel Investors pays out 16.4% of its earnings in the form of a dividend. Extended Stay America pays out 88.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Extended Stay America has increased its dividend for 3 consecutive years. Extended Stay America is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Summary

Extended Stay America beats Sunstone Hotel Investors on 10 of the 17 factors compared between the two stocks.

About Sunstone Hotel Investors

Sunstone Hotel Investors, Inc. is a lodging real estate investment trust ("REIT") that as of July 30, 2018 has interests in 24 hotels comprised of 12,046 rooms. Sunstone's primary business is to acquire, own, asset manage and renovate hotels considered to be Long-Term Relevant Real Estate, the majority of which are operated under nationally recognized brands, such as Marriott, Hilton and Hyatt.

About Extended Stay America

Extended Stay America, Inc., together with its subsidiaries, owns, operates, and manages hotels in the United States. As of February 27, 2018, it had 599 hotels and approximately 66,000 rooms, as well as managed 26 hotels under the Extended Stay America brand. It serves customers in the mid-priced extended stay segment. The company also relicenses Extended Stay America brand to unaffiliated third parties. Extended Stay America, Inc. was founded in 1995 and is headquartered in Charlotte, North Carolina.

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