Apple Hospitality REIT Inc (APLE, Financial) recorded a daily gain of 4.86% and a 3-month gain of 5.33%. With an Earnings Per Share (EPS) (EPS) of 0.7, the question arises: Is the stock modestly undervalued? This comprehensive analysis aims to answer this question and provides a deep dive into the valuation of Apple Hospitality REIT Inc.
Company Overview
Apple Hospitality REIT Inc is a real estate investment trust that mainly invests in the lodging sector in the United States, primarily in upscale service hotels. The company's hotels operate under the Marriott or Hilton brands. With a market cap of $3.60 billion and sales of $1.30 billion, the current stock price stands at $15.76 per share, which is lower than the GF Value of $21.59. This suggests that the stock might be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that calculates the intrinsic value of a stock. It is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Apple Hospitality REIT stock appears to be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. Apple Hospitality REIT has a cash-to-debt ratio of 0, which ranks worse than 0% of 718 companies in the REITs industry. Based on this, GuruFocus ranks Apple Hospitality REIT's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Apple Hospitality REIT has been profitable 9 years over the past 10 years. With an operating margin of 19%, it ranks worse than 81.63% of 664 companies in the REITs industry. Overall, GuruFocus ranks Apple Hospitality REIT's profitability as fair.
Growth is one of the most important factors in the valuation of a company. The average annual revenue growth of Apple Hospitality REIT is -1.5%, which ranks worse than 63.61% of 632 companies in the REITs industry. The 3-year average EBITDA growth is -3.9%, which ranks worse than 65.05% of 535 companies in the REITs industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Apple Hospitality REIT's return on invested capital is 5.25, and its cost of capital is 8.98.
Conclusion
In conclusion, the stock of Apple Hospitality REIT appears to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 65.05% of 535 companies in the REITs industry. To learn more about Apple Hospitality REIT stock, you can check out its 30-Year Financials here.
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