• Wondering whether Pebblebrook Hotel Trust at around US$13.96 still offers value, or if the easy upside is gone? A useful starting point is understanding how its price stacks up against its fundamentals.
• The stock has delivered a 52.9% return over the last year, with gains of 20.9% year to date and 9.4% over the last month. However, the 3 year and 5 year returns of a 1.0% decline and a 40.7% decline show a very different longer term picture.
• Recent coverage has focused on how hotel and resort focused real estate investment trusts are adjusting portfolios, refinancing debt and managing operating costs. All of these factors feed into how investors think about risk and potential recovery in occupancy and room rates. For Pebblebrook Hotel Trust, that kind of news helps frame whether the recent share price strength is being driven by improving fundamentals, changing sentiment about the sector, or both.
• Pebblebrook Hotel Trust currently has a valuation score of 5 out of 6. The rest of this article will unpack what that means through different valuation approaches, before finishing with a broader way to think about what valuation signals really tell you.

Approach 1: Pebblebrook Hotel Trust Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company may be worth by projecting its future adjusted funds from operations and then discounting those cash flows back to today in dollar terms.

For Pebblebrook Hotel Trust, the model used is a 2 Stage Free Cash Flow to Equity approach based on adjusted funds from operations. The latest twelve month free cash flow is $187.449 million. Analysts provide explicit estimates out to 2028, with projected free cash flow of $188.158 million in that year, and Simply Wall St extrapolates further cash flows out to 2035 using modest step ups in the estimates.

When all those future cash flows are discounted back, the model arrives at an estimated intrinsic value of $22.04 per share. Against a current share price of around $13.96, this implies a 36.7% discount, which indicates that the shares appear undervalued based on this DCF analysis.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Pebblebrook Hotel Trust is undervalued by 36.7%. Track this in your watchlist or portfolio, or discover 56 more high quality undervalued stocks.

Approach 2: Pebblebrook Hotel Trust Price vs Sales

For companies where earnings can be volatile, the P/S ratio is often a useful way to think about value because it focuses on revenue, which tends to be more stable than profits from year to year.

In general, investors tend to accept a higher “normal” P/S ratio when they expect stronger growth or see lower risk in a company’s cash flows, and a lower ratio when growth expectations are modest or risks appear higher.

Pebblebrook Hotel Trust currently trades on a P/S ratio of 1.07x. That is below the Hotel and Resort REITs industry average P/S of 4.16x and also below the peer average of 1.51x. Simply Wall St’s Fair Ratio for Pebblebrook Hotel Trust is 1.47x. This is its proprietary view of what an appropriate P/S might be after considering factors such as earnings growth, industry, profit margins, market cap and risk profile.

The Fair Ratio aims to be more tailored than a simple peer or industry comparison because it adjusts for the company’s specific characteristics rather than assuming all businesses in the group deserve the same multiple. Since the current 1.07x P/S is below the 1.47x Fair Ratio, the shares appear undervalued on this P/S basis.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Pebblebrook Hotel Trust Narrative

Earlier it was mentioned that there is an even better way to understand valuation, and on Simply Wall St this comes through Narratives, where you connect your view of Pebblebrook Hotel Trust to a clear set of forecasts for revenue, earnings, margins and a fair value. You can then compare that Fair Value to the current price to help decide whether to buy, hold or sell, all within an easy tool on the Community page that updates automatically when new news or earnings arrive. For example, one Pebblebrook Narrative might lean closer to the higher analyst view around US$19.50 or US$20.00 if you think redevelopments, technology and urban events support stronger long term earnings. Another might anchor to the lower US$9.00 view if you are more focused on urban concentration, cost pressures and travel shifts. The platform allows you to see and adjust these different stories side by side so your decisions are always linked to numbers you actually agree with.

For Pebblebrook Hotel Trust, however, we will make it really easy for you with previews of two leading Pebblebrook Hotel Trust Narratives:

Fair value: US$17.53

Implied discount to fair value: around 20.5% compared to the recent US$13.96 share price

Revenue growth assumption: 3.0% a year

• Expects revitalized urban markets and ongoing redevelopments to support stronger room rates, occupancy and margins than analysts currently factor in.
• Builds in benefits from high barriers to new hotel supply and wider use of technology to support pricing power and efficiency.
• Requires confidence that revenue can reach about US$1.6b with earnings of roughly US$58.7m and a P/E of 48.3x by 2028 for the fair value to hold.

Fair value: US$13.27

Implied premium to fair value: around 5.2% compared to the recent US$13.96 share price

Revenue growth assumption: 0.8% a year

• Assumes revenue stays fairly flat over the next few years and that margin improvement takes time, even with automation and upgraded assets.
• Highlights concentration in large urban markets, higher labor costs, changing travel habits and climate risk as key sources of earnings uncertainty.
• Anchors on a consensus view that sees earnings of about US$93.8m by 2029 and a P/E of 18.7x, which points to a fair value close to the current share price.

If you want to see how these narratives are built in full, including all the earnings, margin and valuation assumptions behind them, See what the community is saying about Pebblebrook Hotel Trust.

Do you think there's more to the story for Pebblebrook Hotel Trust? Head over to our Community to see what others are saying!

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.