Should Value Investors Buy DiamondRock Hospitality (DRH) Stock?

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Of these, perhaps no stock market trend is more popular than value investing, which is a strategy that has proven to be successful in all sorts of market environments. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

Luckily, Zacks has developed its own Style Scores system in an effort to find stocks with specific traits. Value investors will be interested in the system's "Value" category. Stocks with both "A" grades in the Value category and high Zacks Ranks are among the strongest value stocks on the market right now.

One stock to keep an eye on is DiamondRock Hospitality (DRH). DRH is currently sporting a Zacks Rank #2 (Buy), as well as an A grade for Value. The stock has a Forward P/E ratio of 7.89. This compares to its industry's average Forward P/E of 15.21. Over the past 52 weeks, DRH's Forward P/E has been as high as 9.58 and as low as 6.25, with a median of 8.00.

Another valuation metric that we should highlight is DRH's P/B ratio of 1.08. 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. This stock's P/B looks solid versus its industry's average P/B of 1.77. Within the past 52 weeks, DRH's P/B has been as high as 1.22 and as low as 0.85, with a median of 1.08.

Value investors also love the P/S ratio, which is calculated by simply dividing a stock's price with the company's sales. Some people prefer this metric because sales are harder to manipulate on an income statement. This means it could be a truer performance indicator. DRH has a P/S ratio of 1.65. This compares to its industry's average P/S of 3.76.

Finally, investors will want to recognize that DRH has a P/CF ratio of 9.43. This metric takes into account a company's operating cash flow and can be used to find stocks that are undervalued based on their solid cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 15.09. Over the past 52 weeks, DRH's P/CF has been as high as 11.57 and as low as 8.09, with a median of 9.95.

If you're looking for another solid REIT and Equity Trust - Other value stock, take a look at Piedmont Realty Trust, Inc. (PDM). PDM is a Zacks Rank of #2 (Buy) stock with a Value score of A.

Piedmont Realty Trust, Inc. sports a P/B ratio of 0.72 as well; this compares to its industry's price-to-book ratio of 1.77. In the past 52 weeks, PDM's P/B has been as high as 0.84, as low as 0.46, with a median of 0.63.

These figures are just a handful of the metrics value investors tend to look at, but they help show that DiamondRock Hospitality and Piedmont Realty Trust, Inc. are likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, DRH and PDM feels like a great value stock at the moment.

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

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