DiamondRock Hospitality (NYSE:DRH) and Service Properties Trust (NASDAQ:SVC) Critical Analysis

DiamondRock Hospitality (NYSE:DRH) and Service Properties Trust (NASDAQ:SVC) are both real estate companies, but which is the superior stock? We will compare the two companies based on the strength of their earnings, risk, institutional ownership, valuation, analyst recommendations, dividends and profitability.

Valuation and Earnings

This table compares DiamondRock Hospitality and Service Properties Trust”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
DiamondRock Hospitality	$1.15 billion	2.51	$48.05 million	$0.79	17.82
Service Properties Trust	$1.81 billion	0.39	-$202.32 million	($7.70)	-0.71

DiamondRock Hospitality has higher earnings, but lower revenue than Service Properties Trust. Service Properties Trust is trading at a lower price-to-earnings ratio than DiamondRock Hospitality, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares DiamondRock Hospitality and Service Properties Trust’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
DiamondRock Hospitality	5.69%	4.04%	2.05%
Service Properties Trust	-29.31%	-71.48%	-7.56%

Institutional & Insider Ownership

77.6% of Service Properties Trust shares are owned by institutional investors. 0.9% of DiamondRock Hospitality shares are owned by company insiders. Comparatively, 1.6% of Service Properties Trust shares are owned by company insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock is poised for long-term growth.

Dividends

DiamondRock Hospitality pays an annual dividend of $0.44 per share and has a dividend yield of 3.1%. Service Properties Trust pays an annual dividend of $0.20 per share and has a dividend yield of 3.7%. DiamondRock Hospitality pays out 55.7% of its earnings in the form of a dividend. Service Properties Trust pays out -2.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. DiamondRock Hospitality has increased its dividend for 1 consecutive years. Service Properties Trust is clearly the better dividend stock, given its higher yield and lower payout ratio.

Risk and Volatility

DiamondRock Hospitality has a beta of 1.04, meaning that its share price is 4% more volatile than the S&P 500. Comparatively, Service Properties Trust has a beta of 1.78, meaning that its share price is 78% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings for DiamondRock Hospitality and Service Properties Trust, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
DiamondRock Hospitality	0	7	4	0	2.36
Service Properties Trust	1	2	3	0	2.33

DiamondRock Hospitality currently has a consensus target price of $13.03, suggesting a potential downside of 7.46%. Service Properties Trust has a consensus target price of $12.05, suggesting a potential upside of 121.71%. Given Service Properties Trust’s higher probable upside, analysts clearly believe Service Properties Trust is more favorable than DiamondRock Hospitality.

Summary

DiamondRock Hospitality beats Service Properties Trust on 10 of the 17 factors compared between the two stocks.

About DiamondRock Hospitality

DiamondRock Hospitality Company is a self-advised real estate investment trust (REIT) that is an owner of a leading portfolio of geographically diversified hotels concentrated in leisure destinations and top gateway markets. The Company currently owns 36 premium quality hotels with over 9,700 rooms. The Company has strategically positioned its portfolio to be operated both under leading global brand families as well as independent boutique hotels in the lifestyle segment.

About Service Properties Trust

Service Properties Trust (Nasdaq: SVC) is a real estate investment trust with over $11 billion invested in two asset categories: hotels and service-focused retail net lease properties. As of December 31, 2023, SVC owned 221 hotels with over 37,000 guest rooms throughout the United States and in Puerto Rico and Canada, the majority of which are extended stay and select service. As of December 31, 2023, SVC also owned 752 service-focused retail net lease properties totaling approximately 13.3 million square feet throughout the United States. SVC is managed by The RMR Group (Nasdaq: RMR), a leading U.S. alternative asset management company with over $41 billion in assets under management as of December 31, 2023, and more than 35 years of institutional experience in buying, selling, financing and operating commercial real estate. SVC is headquartered in Newton, MA.