RLJ Lodging Trust (RLJ): Assessing Valuation After Recent Share Price Slide

RLJ Lodging Trust (RLJ) shares have continued a downward drift this month, tracking a roughly 8% slide over the past month and a larger 19% drop in the past year. Investors are watching closely to see if the stock will find support at these levels.

See our latest analysis for RLJ Lodging Trust.

RLJ Lodging Trust’s 19% one-year total shareholder return is underwhelming, hinting that momentum has faded in the hospitality real estate sector. This comes despite recent market optimism elsewhere. Share price softness suggests investors remain cautious about the company’s recovery potential and risk outlook, even as valuations adjust.

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With RLJ’s share price now trading more than 25% below analyst targets and an even steeper 50% discount to some intrinsic valuations, investors may wonder whether the market is overlooking potential upside or if future challenges are already reflected in the current price.

Price-to-Earnings of 33.3x: Is it justified?

RLJ Lodging Trust is currently trading with a steep price-to-earnings ratio of 33.3x, placing its shares at a notable premium compared to peers and its own recent performance. The last closing price was $7.05, which stands in sharp contrast to typical industry valuations.

The price-to-earnings multiple, or PE ratio, measures how much investors are willing to pay for each dollar of company earnings. For real estate investment trusts like RLJ, this gauge often reflects expectations of stable or growing profits, as it aligns price with net income performance.

However, in RLJ’s case, the current PE of 33.3x is significantly higher than both the Global Hotel and Resort REITs industry average of 17.4x and the peer average of 25.7x. When comparing this figure to the estimated fair PE of 15.1x, RLJ’s shares appear even more expensive on an earnings valuation basis. This may point to market optimism or potential mispricing that could change as fundamentals evolve.

Explore the SWS fair ratio for RLJ Lodging Trust

Result: Price-to-Earnings of 33.3x (OVERVALUED)

However, sustained weak net income growth or broader sector volatility could challenge any case for upside in RLJ Lodging Trust’s current valuation.

Find out about the key risks to this RLJ Lodging Trust narrative.

Another View: Discounted Cash Flow Analysis Tells a Different Story

While the current price-to-earnings ratio makes RLJ Lodging Trust appear overvalued, our DCF model provides a starkly different perspective. According to this valuation, the shares are actually trading at a steep 52.6% discount to estimated fair value. Does Wall Street see hidden risks, or is the market too skeptical about RLJ's recovery prospects?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out RLJ Lodging Trust for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own RLJ Lodging Trust Narrative

If you see things differently or would rather dig into the numbers on your own, you can craft a personalized view of RLJ Lodging Trust in just a few minutes, Do it your way

A great starting point for your RLJ Lodging Trust research is our analysis highlighting 1 key reward and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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