When Should You Buy Extended Stay America, Inc. (NASDAQ:STAY)?

By
Simply Wall St
Published
June 08, 2021
Source: Shutterstock

Extended Stay America, Inc. (NASDAQ:STAY), might not be a large cap stock, but it led the NASDAQGS gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Today I will analyse the most recent data on Extended Stay America’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Extended Stay America

What's the opportunity in Extended Stay America?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 4.24% above my intrinsic value, which means if you buy Extended Stay America today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth $19.36, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Extended Stay America’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Extended Stay America generate?

earnings-and-revenue-growth
NasdaqGS:STAY Earnings and Revenue Growth June 8th 2021

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Extended Stay America, at least in the near future.

What this means for you:

Are you a shareholder? STAY seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on STAY for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on STAY should the price fluctuate below its true value.

So while earnings quality is important, it's equally important to consider the risks facing Extended Stay America at this point in time. Our analysis shows 2 warning signs for Extended Stay America (1 can't be ignored!) and we strongly recommend you look at these before investing.

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