Airline travel was decimated by the pandemic. Most of the market leaders saw their stock prices slump as flying hours decreased to near zero. easyJet (LSE: EZJ) was no different and saw its stock fall over 60% between February and March 2020.

In 2022, even though flying hours have drastically improved, easyJet shares are still down 41% year-to-date. Over a 12-month time span, the shares have fallen 47%. I think this could be a prime opportunity for me to buy the stock at a beaten-down discount. Let’s explore why.

Encouraging results

In easyJet’s Q3 2022 results, it reported some strong figures. Although the group posted a loss of £114m, it managed £1.7bn in revenue. For context, for the same period in 2021, group revenue was just £213m, highlighting the impressive recovery. Its losses also shrank by £200m from Q3 2021.

Aside from growing revenues, one of the most encouraging metrics I saw was the decrease in debts. The airline sector is notorious for being saddled with high levels of debt after the pandemic, with players like IAG still sitting on over £8.5bn in debt on its balance sheet. easyJet, however, has a modest £200m debt, down from £600m in Mach 2022. With interest rates on the rise, it’s very encouraging to see the group trimming its borrowings.

Global passenger traffic is also still recovering. The airline reported that it’s now operating at 87% of FY19 capacity, which is very reassuring. It’s expected that in 2022, over 3.5bn passengers will board flights, up from just 1.8bn in 2020. This should help easyJet increase its top-line revenues and drive itself back towards profitability.

Not out of the woods yet

There are still a few risks that easyJet must overcome. For starters, the Russia-Ukraine crisis has sent oil prices skyrocketing. Although easyJet has announced that it has 83% hedged fuel for Q4, rising costs are something it will have to contend with in the future. That’s especially so considering inflation is showing no signs of slowing down.

In addition to this, the cost-of-living crisis (also caused by red-hot inflation) means workers are taking strike action. The problem is that if easyJet doesn’t find extra cash for wages, then strikes will continue and operational efficiency will be greatly hindered. However, if it does agree even a small increase in wages, it will have to shell out millions in extra costs as it employs over 13,000 people.

Why I’m buying

For me, easyJet is a prime example of a good quality stock beaten down by Covid-19 and inflation-related market sentiment. It has decreasing debts, rising revenue, and passenger footfall is set to keep rising in the near future and beyond. All of these factors signify to me the stock could surge in the near future. Yes, rising costs still pose a risk, however, the hedged fuel serves to mitigate this in the short term. For those reasons, I’m looking at adding easyJet shares to my portfolio today.

The post I think easyJet shares are about to surge! Here’s why appeared first on The Twelfth Magpie.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I think major hotel brands are likely to be good long-term investments… if the price is right. Today, I’m going to look at three London-listed hotel stocks I’d be happy to own.

Biggest and best?

I’ll start with FTSE 100 firm Intercontinental Hotels Group (LSE: IHG). This £9.4bn group owns 17 hotel brands including Holiday Inn, Crowne Plaza, InterContinental and Six Senses. What it doesn’t own is hotels — at least, not many.

Over the years, IHG has gradually shifted to owning brands. Most of the hotels are franchised — the group controls 837,000 rooms in 5,603 properties, but owns just 23 hotels.

This model means spending requirements are fairly low, but profit margins are high. Cash generation is good and, although the dividend yield is just 2%, InterContinental has a record of making one-off extra cash payments to shareholders whenever possible.

The shares are close to all-time highs and trade on about 20 times forecast earnings. I wouldn’t be afraid to buy at this level but, personally, I’d aim to wait for the next market dip to secure a better entry price.

Closer to home

One option for investors who’d like more direct exposure to the UK market is Premier Inn-owner Whitbread (LSE: WTB).

At the end of February, there were 804 Premier Inns in the UK, with 76,171 rooms. The business struggled to grow last year and revenue per available room (an industry standard measure) fell by 1.7% to £48.99.

However, one attraction is that the brand is extremely strong, with 97% of bookings made directly. This should help build customer loyalty, as it suggests many travellers simply look for the nearest Premier Inn to their destination, rather than searching for other hotels.

The company plans to continue expanding in the UK and has a pipeline of nearly 13,000 new rooms. Using cash from the Costa sale, the company is now planning a significant rollout in Germany, where it believes the budget market is underserved.

Whitbread shares have pulled back from the £51 high seen earlier this year. My feeling is the shares could continue to fall back towards the £40 level, where I’d be keen to buy.

Primed for growth?

If you’re looking for a smaller business with the potential to deliver rapid growth, one company I’d consider is budget brand easyHotel (LSE: EZH).

Revenue has tripled from £3.5m to £11.3m over the last five years. Results published today suggest this momentum is continuing. Revenue for the six months to 31 March rose by 52.6% to £7.26m, compared to the same period last year.

The profitability of this business has been fairly weak so far, in my view. However, I’m hopeful this will improve as the company continues to expand and shifts its focus towards franchising.

easyHotel shares have fallen by nearly 40% over the last year and now trade broadly in line with their book value of 81p. The shares look expensive relative to earnings. But if the group’s rollout continues at this pace, I believe profits could rise quickly. I see this as a buy for long-term investors.

The post 3 growth stocks I’d buy and hold for the next 50 years appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended InterContinental Hotels Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The risk of loss is, of course, relatively high. That’s partly why it may be a better idea to buy shares in a growth stock such as AstraZeneca (LSE: AZN). It appears to offer an improving financial outlook, while also trading on a fair valuation and having defensive characteristics.

Alongside another growth share that released an encouraging update on Thursday, AstraZeneca may offer a better chance of generating high long-term returns than forex trading.

Growth potential

The stock in question is budget hotel operator easyHotel (LSE: EZH). Its trading update for the first six months of its financial year showed a rise in system sales of 24% to £19.9m, while revenue increased by 47% to £7m. Its hotels outperformed the wider UK market, with consumer confidence coming under pressure. But this may suit the business, since its budget offering could prove popular among consumers who are looking to trade down to cheaper options.

The company’s actions to drive occupancy appear to be having a positive impact on its performance. It is also seeking to capitalise on economic weakness in order to expand its development pipeline in target destinations.

Looking ahead, easyHotel is expected to post a rise in earnings of 300% in the current year. It trades on a price-to-earnings growth (PEG) ratio of 0.2, which suggests that it offers excellent value for money. While potentially risky due in part to its small size, it could offer high returns in the long run.

Changing business

Although AstraZeneca may not be considered a growth stock by many investors due to its disappointing performance over recent years, the investment it has made in its pipeline has led to a changed business. In recent quarters it has reported improving growth, with its bottom line due to rise by around 13% in the current year. This suggests that the challenges it has faced in recent years in terms of the loss of patents on blockbuster drugs are beginning to fade.

As a result, now could be a good time to buy the stock. It trades on a PEG ratio of 1.7, which indicates that it offers a wide margin of safety. That’s especially the case since the company has a defensive business model that is relatively independent of the wider economy when it comes to delivering growth. And, with it having strong cash flow, its pipeline investment could increase over the medium term.

Certainly, trading forex may sound more exciting than buying shares in a healthcare company such as AstraZeneca. But with the world’s population growing and ageing, the company could have a real growth opportunity, while its stable balance sheet and resilient growth prospects mean that its risks may be significantly lower than those experienced when trading forex.

The post Forget forex trading: I think the AstraZeneca share price offers an easier way to get rich appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Meanwhile, the share price of easyHotel (LSE: EZH), which issued a trading update this morning ahead of its AGM, is well down from a high of 128p last year. In fact, it’s close to its 52-week low of 85p, leaving it not far above the 80p price of its flotation back in 2014. Listed on the junior AIM market, its capitalisation currently stands at around £125m.

Despite the huge difference in their market-caps, and in the recent performance of their shares, I believe both companies have exciting growth prospects. And I’d be happy to buy a stake in them at today’s prices.

Premier investment

On the face of it, Whitbread’s shares don’t appear cheap. According to the company’s website, City analysts are forecasting a pre-tax profit of £444m for its current financial year (ending next month). After tax, I reckon this translates into a price-to-earnings (P/E) ratio of around 25.

Management has said it expects pre-tax profit to be flat for the year to February 2020. However, earnings per share should increase because the company has launched an “initial” share buyback programme of up to £500m, as part its plan to return “a significant majority” of the Costa sale proceeds to shareholders. This will bring the P/E down, although we don’t yet know by how far.

Be that as it may, it’s not the immediate outlook, but Whitbread’s longer-term prospects, that excites me. It’s in the early stages of expanding into the large German market. This should be a real driver of growth, if it can replicate the success of Premier Inn UK.

Not that the company’s finished expanding on home soil. Its core offering still has scope for growth, and it’s also set to roll out a super-budget brand, Zip. I’d be happy to try Zip’s small rooms (designed by an award-winning designer of first class aircraft cabins) at £19 a night. But I’d be willing to pay a bit more for Whitbread’s shares — up to £50.

Easy check-in

easyHotel is focused solely on the super-budget market. In today’s update, it reported revenue growth of 60% in the first quarter of its current financial year, which runs to September. Like-for-like revenue per available room in its owned hotels was up 11.2%.

Like Whitbread, the company is cautious on the near-term outlook in the UK, due to the impact of political and economic uncertainty on consumer confidence. It intends to sacrifice gross margin in order to continue driving revenue growth and brand recognition, with the opening of new owned and franchise hotels, both at home and abroad.

Despite the near-term headwinds, and Whitbread entering the super-budget sector, I continue to see easyHotel as an attractive long-term growth stock with multi-bagging potential. Institutional investors were happy to support a £50m placing at 110p a share last year, in order for the company to accelerate its development pipeline. I think checking in at today’s super-budget price of little more than 85p could prove a bargain for long-stay investors.

The post Why I’d pay up to £50 a share for this FTSE 100 growth stock appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

My big-cap pick is Premier Inn owner Whitbread (LSE: WTB). This FTSE 100 business has 74,070 rooms in 795 UK hotels.

Growing fast is “super budget” hotel operator easyHotel (LSE: EZH). This AIM-listed firm is applying the budget airline model to hotels, with stripped back prices and lots of optional extras. easyHotel is growing fast, but so far it only has 34 hotels with a total of 3,169 rooms.

Which company do I think is the best buy for new investors today?

Strong growth

Revenue at easyHotel rose by 33.7% to £11.3m during the 12 months ended 30 September. The group’s adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 28.6% to £2.96m.

Most of this growth came from adding new rooms. Nine new hotels were added last year with 907 new rooms — a 40% increase. Encouragingly, occupancy improved from 79.8% to 82.4%.

Rapid growth from a small base means that most of the group’s cash is being swallowed up by hotel openings and rising central costs. Pre-tax profit only rose by 1.4% to £0.87m last year. Earnings per share actually fell by 21% to 0.5p, due to the dilutive effect of a £50m share placing in February.

Bull or bear?

Investors who back easyHotel’s business model will say that investment in new hotels today should pay off in future years. That could well be true. The group’s market cap of £129m certainly doesn’t look expensive when measured against its net asset value of £120m.

However, these net assets include £41m of cash, which the company plans to spend on opening more hotels. Investors will need to trust that spending on new developments is being well managed so that profitability starts to improve.

With the stock trading on 50 times 2019 forecast earnings, this situation is still too speculative for me.

My Premier choice

In August, Whitbread announced plans to sell Costa Coffee to The Coca-Cola Company. When this £3.9bn deal completes, Premier Inn will become the group’s sole focus. What’s interesting about this is that despite the budget hotel chain’s current size, management believe there’s still plenty of room to expand.

In the UK, the company has a “committed pipeline” of new hotels that will add an extra 13,000 rooms to its existing total of 74,000. Beyond this, the company is starting to expand the business in Germany and the Middle East.

Despite this rapid growth, occupancy has remained stable at over 80% and the group’s average room rate has edged higher.

Is Whitbread stock cheap?

It’s a little difficult to get a clear picture of Whitbread’s future earnings until the split with Costa Coffee has been completed. But what I do know is that that the Premier Inn UK business generates a return on capital of about 13%. This strong figure shows that the group is generating plenty of cash to help fund its own growth.

I’d like to own Whitbread shares. But to be honest I think they look a bit expensive at the moment, on 22 times forecast earnings and with a yield of just 2%. I’m going to sit tight and wait for a better buying opportunity.

The post The Whitbread share price is smashing the FTSE 100. Time to buy? appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Strong trading

Despite the recent turbulence, easyJet has delivered a terrific return for long-haul investors since its flotation in 2000. The shares have more than quadrupled in value and there have been nice dividends on top.

The company released a trading update two weeks ago. It said that with strong trading having continued in the fourth quarter of its financial year ending 30 September, it now expects to deliver full-year pre-tax profit of between £570m and £580m — in the upper half of previous guidance. Nevertheless, the share price has continued to decline and remains depressed at around 1,200p.

Market overly pessimistic?

City analysts are forecasting earnings per share (EPS) of 118.2p for the year, giving a cheap price-to-earnings (P/E) ratio of 10.2. In addition, with a 54.5p dividend forecast, there’s a high-altitude 4.5% yield. For fiscal 2019, forecasts of 13% EPS growth bring the P/E down into the single-digit bargain basement, while the dividend yield rises to over 5%.

The market’s big fear seems to be that the European regional aviation market could be materially adverse for easyJet, post-Brexit. I think this fear is overly pessimistic and with the company having contingency plans for possible outcomes, I rate the stock a ‘buy’.

Accelerated expansion

easyHotel’s share price hasn’t moved on today’s trading update. At 101.5p, its market capitalisation is £148m. Having floated on AIM at 80p in 2014, can this super-budget hotel chain follow the same path as easyJet, whose market capitalisation has grown to £4.7bn?

Today’s update told us of a strong operating performance for the year ended 30 September, as well as accelerated expansion. The company opened five new owned hotels during the period and four in its franchise portfolio. These combined openings increased the group’s room count by 42%, taking its total network to 33 hotels and 3,068 rooms across 27 cities in the UK and Europe. There are almost as many rooms again in its development pipeline.

Ludicrously expensive?

easyHotel is forecast to post full-year pre-tax profit of £0.8m on revenue of £11.1m for the financial year just ended, followed by £3.8m on £19.8m for fiscal 2019. EPS forecasts of 0.5p, rising to 2p, give P/Es of over 200 and 50, while dividend forecasts of 0.2p, rising to 0.6p, give yields of 0.2% and 0.6%.

My colleague Paul Summers reckons the stock is ludicrously expensive due to the high P/Es. However, such is the rate of expansion that when I look to fiscal 2020, the multiple falls to below 30. The strength of the brand, the group’s rapid near-term expansion, potential for long-term growth, and resilience through the economic cycle (provided by its super-budget positioning) all lead me to rate the stock a ‘buy’.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, it’s not the only stock that could deliver high growth over the long run. Reporting on Monday was another share which could generate impressive capital returns in the coming years.

Improving outlook

The company in question is super-budget hotel operator easyHotel (LSE: EZH). The company announced  it has opened three further owned hotels, as well as two franchised hotels. This takes the total number of owned rooms open to 1,130, with a further 1,938 franchise rooms now open. All five hotels are trading strongly and in line with management expectations.

The company also announced on Monday that it has conditionally acquired a 999-year lease in Blackpool. It will develop a 103-room hotel, subject to receiving planning permission. The hotel is expected to open during the company’s 2021 financial year, and has the potential to catalyse its financial performance.

The popularity of super-budget hotels could increase due to weak consumer confidence. With consumers seemingly worried about Brexit and the potential impact on their disposable incomes, they may trade down to cheaper options. Since the stock has a price-to-earnings growth (PEG) ratio of just 0.6, it seems to offer significant upside potential over the long run.

Growth potential

The prospects for the Diageo share price also seem to be relatively upbeat. The company’s expansion plans in recent years look set to pay off, with increasing exposure to emerging markets making it increasingly appealing from an investment perspective. Allied to this, is the stock’s geographic diversity, with its exposure to a range of countries having the potential to provide a resilient growth outlook should one region experience a slowdown.

Diageo’s recent update showed that alongside its sales growth potential, its margins are also improving. An efficiency programme, which has been running for a couple of years, is gradually making the business leaner and more profitable. This could catalyse the performance of the stock, and may attract investors at a time when the prospects for the global economy remain buoyant.

One area where the company is somewhat disappointing is its dividend. It has a yield of just 2.6%, which is 140 basis points lower than the dividend yield offered by the wider FTSE 100 at the present time.

However, with dividend payments being covered 1.8 times by profit, and the company having the potential to generate improving financial performance, its long-term income prospects appear to be bright. As such, now could be the right time to buy it, having the potential to help an investor to improve on those disappointingly-low payments from the State Pension.

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Peter Stephens owns shares of Diageo. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Including capital growth, over the past decade the shares have produced a total return for investors of 18.2%, which means InterContinental has doubled investors’ cash once every four years.

And City analysts are expecting the company to increase its cash payouts further over the next two years. Dividend growth of 21% is projected for 2018 and growth of 10% is pencilled in for 2019 — that’s excluding any special distributions.

Today’s first quarter trading update indicates to me that these City targets could be conservative. 

Revenue per available room — a key industry measure — rose 3.5% in the three months to March 31, above City estimates and last year’s benchmark of 2.7%. Analysts had been expecting earnings per share to fall by 5.7% for the full-year, but these figures seem to suggest that the company will now outperform expectations. This could mean increased cash returns to investors. 

Trouble ahead? 

However, while I do believe InterContinental could make an excellent income pick for your portfolio, I’m worried about the state of the group’s balance sheet. 

Over the past few years, the hotel group’s cash returns have been funded by assets sales and borrowing. The result is that since 2012, assets such as owned property have fallen from $2.2bn to under $900m, while net debt has jumped from $1bn to $1.8bn. Shareholder equity has fallen from $300m to under -$900m. 

There’s no reason why the company cannot continue on its current trajectory in my view when times are good, but there may be hard times ahead for the enterprise if another economic crisis rolls around. 

A better buy? 

Considering the above, a better dividend buy for your portfolio might be InterContinental’s competitor easyHotel (LSE: EZH). Like its larger peer, it is returning plenty of cash to investors. City analysts expect the firm’s dividend payout to jump 100% over the next two years to 70p, giving a dividend yield at the time of writing of 3.4%.

The company is also expanding rapidly. Its latest trading update shows that the group achieved a 33.6% increase in sales during the first half of 2018, with revenue per available room leaping 11.2%. 

What’s more, the firm has a stronger balance sheet than InterContinental. Rather than borrowing money, the company is asking shareholders for extra cash and reinvesting cash from operations to expand its portfolio of owned properties and franchisees. 

According to the company’s latest set of results, the group has a positive net cash balance and a shareholder equity value of £70m. In my opinion, these strong financial metrics put the business in a strong position to be able to continue its expansion and weather any downturn in the hotel market.

Put simply, if you are looking for a long-term buy and forget income investment, easyHotel might be the better buy.

The post Why fat dividends from InterContinental Hotels leave me cold appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Despite having already soared, I believe Boohoo’s shares can rise a lot higher yet. And I’ve got another AIM-listed growth stock for you that I’m equally excited about. This company, which released a trading update today, has a market cap of little more than £100m and I reckon it can grow as big as Boohoo.

Multi-pronged growth

There’s a lot I like about Boohoo. Its founders are rag trade veterans, who retain a significant stake in the company. Its e-commerce focus gives it cost advantages over traditional bricks-and-mortar chains and its value-orientated proposition should make it relatively resilient through the economic cycle.

I also like the fact that its growth is multi-pronged. It’s acquired complementary brands PrettyLittleThing and Nasty Gal. It’s extended its offering with range extensions into menswear and kidswear. And international sales are rising fast, with over 40% of group revenue now coming from outside the UK. It has customers in almost every country in the world.

Long growth runway

A trading update for the 10 months to 31 December, released earlier this month was, in the words of my Foolish colleague, Alan Oscroft, “everything that a growth investor could possibly want.” The company advised that revenue for the full financial year “is now expected to be [up] around 90%, ahead of our previous guidance of around 80%, which was raised from 60% at our interim results in late September.”

While Alan is wary of the stock’s valuation, Boohoo’s business model, growth strategy and long growth runway lead me to rate the shares a ‘buy’. The price-to-earnings (P/E) ratio for the current year is 67, falling to 55 for fiscal 2019 and 42 for 2020. The company’s revenue is forecast to break through £1bn in 2020, by which time it’ll also have warehouse capacity in place to support sales of over £2.5bn.

Earnings take-off

Fast-growing easyHotel (LSE: EZH) is another stock I rate a ‘buy’. Founded by Stelios Haji-Ioannou, nine years after his launch of easyJet, the hotel group was floated at 80p a share three months after Boohoo’s IPO in 2014.

easyHotel’s shares haven’t soared to the extent of the fashion company’s — they’re currently changing hands at 113.5p (up over 4% on the back of this morning’s trading update) — but I believe the ‘super budget’ hotel chain can replicate the success of its older airline sibling.

Today’s trading update didn’t tell us too much we didn’t already know but did advise that the current financial year (to 30 September) has started well, with a continuation of the like-for-like growth trends of last year. The company has a strong pipeline of new hotel openings to expand its existing estate of seven owned and 19 franchised hotels (in eight countries) and City analysts are forecasting that earnings growth will begin to take-off in fiscal 2019. A P/E of 35 for that year, falls to 24 for fiscal 2020 and I continue to think that easyHotel could be a millionaire-maker for investors.

The post Boohoo.Com plc isn’t the only monster growth stock I’d buy today appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo.com. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Rooms belonging to budget hotel brand easyHotel (LSE: EZH) might appeal to penny pinchers, but the company’s shares certainly do not qualify as cheap. 

At the time of writing, shares in easyHotel trade at a forward P/E of 227, making them one of the most expensive stocks trading on the London market. 

However, despite the company’s eye-watering valuation, I believe that it could be a great investment. 

Charging ahead

Since the end of 2015, shares in easyHotel have surged by more than 50% per annum on the back of the company’s rapid expansion. 

Today the group reported that revenue for the period to 30 September had risen to £8.4m (beating estimates of £7.8m), up 39.7% year-on-year and up 53% since 2015. Adjusted EBITDA expanded 48%. 

Unfortunately, earnings per share fell by 50% to 0.7p, but this was mainly due to just over £600k of hotel pre-opening and other exceptional costs. In this case, adjusted EBITDA growth is a much better reflection of the rapidly growing business’s true expansion. 

Even though easyHotel’s revenue is multiplying, the company’s income statement does not do it justice. The real value is to be found in the balance sheet and cash flow statement. 

Indeed, for the year to September, the firm generated £2.2m in cash from operations including financing costs. This robust cash flow helped fund management’s expansion plans. £23m was spent during the period buying property and expanding the group’s activities. At the end of the period, the group had £51m of property and £33m of cash. 

Net asset value per share at the end of the period was 72p, and on this basis, the shares look to be relatively undervalued. Its hotel peer group trades at an average price-to-book value of two, 18% more than the company’s current multiple of 1.7 times. 

Growth ahead 

Over the next few years, its growth should take off. The company has invested millions in new hotels over the past 12 months. The business currently has a total development pipeline of 921 owned rooms and 1,798 franchised rooms to add to the existing portfolio of 598 owned rooms and 1,750 franchised rooms. Since the last financial year ended, management has added another 464 rooms to the pipeline. 

As these come on-line, easyHotel’s revenue, profit, and cash generation will explode, and that’s why I like the look of the shares. 

Even though the group might look expensive on an earnings basis today, its rapid expansion promises healthy returns for investors in the future. The group is already highly cash generative, and when growth slows, this cash generation should translate into shareholder returns. 

If the company paid out all of its cash generation to investors, based on last year’s figures, the shares would yield 1.8%. However, as the hotel portfolio doubles in size over the next few years, this could rise to 4% or 5%. These are only rough estimates, but they show easyHotel’s growth potential. That’s why I’d buy the shares today. 

The post Why I’d buy this multibagging stock that’s returned 50% p.a. appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.