Sunstone Hotel Investors Inc. Stock Downgraded (SHO)

NEW YORK (TheStreet) -- Sunstone Hotel Investors (NYSE:SHO) has been downgraded by TheStreet Ratings from hold to sell. The company's weaknesses can be seen in multiple areas, such as its generally disappointing historical performance in the stock itself, generally weak debt management and poor profit margins.

Highlights from the ratings report include:

• SHO's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 32.31%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
• Even though the current debt-to-equity ratio is 1.20, it is still below the industry average, suggesting that this level of debt is acceptable within the Real Estate Investment Trusts (REITs) industry. Despite the fact that SHO's debt-to-equity ratio is mixed in its results, the company's quick ratio of 0.62 is low and demonstrates weak liquidity.
• The gross profit margin for SUNSTONE HOTEL INVESTORS INC is currently extremely low, coming in at 13.30%. Regardless of SHO's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 17.60% trails the industry average.
• The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Real Estate Investment Trusts (REITs) industry and the overall market on the basis of return on equity, SUNSTONE HOTEL INVESTORS INC underperformed against that of the industry average and is significantly less than that of the S&P 500.

Sunstone Hotel Investors, Inc. operates as a real estate investment trust. The firm engages in the acquisition, ownership, asset management, renovation, and sale of luxury, upper upscale, and upscale full-service hotels in the United States. Its portfolio also includes mid-scale hotels. The company has a P/E ratio of 51.1, above the average real estate industry P/E ratio of 4.9 and above the S&P 500 P/E ratio of 17.7. Sunstone Hotel Investors has a market cap of $658.9 million and is part of the financial sector and real estate industry. Shares are down 44.8% year to date as of the close of trading on Wednesday.

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