A Five Star Hotel Stock

Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The hotel business has been experiencing tough times over the last years due to oversupply on an industry level and uninspiring economic growth on a global scale. But things are slowly turning around for the industry, and one hotel company stands above most competitors in terms of profitability and potential for growth. InterContinental (NYSE: IHG) is a superior hotel operator offering an attractive valuation and solid long term potential.

 High Quality

With more than 4,400 hotels and 440,000 rooms in more than 100 countries, InterContinental is the biggest hotel company in the world in terms of available rooms. The company has a leadership position in 13 of the 20 biggest hotel markets on the planet, which collectively account for 83% of the industry according to the company´s management. InterContinental owns some of the renowned hotel brands like Holiday Inn, Holiday Inn Express, InterContinental and Crowne Plaza

 Management has made a smart decision by focusing on managing and franchising its hotels, as opposed to owning the property.  This business model reduces capital expenditure requirements for InterContinental, and at the same time it allows for higher flexibility and speed of execution in its growth ventures.  InterContinental has a more resilient fee structure and higher profitability than its competitors.

When comparing profitability ratios for InterContinental versus competitors like Starwood (NYSE: HOT), Wyndham (NYSE: WYN), Hyatt (NYSE: H) and Marriott (NYSE: MAR), the company comes ahead of the competition using different measures like Return on Assets, Return on Equity and Operating Margins.

Excellent location

The company is well positioned to capture growth opportunities in China, which is one of the most interesting countries when it comes to potential for expansion over the following years. Unlike saturated markets like the US or Europe, the hotel market in China is materially underpenetrated, and offers significant room for expansion, especially in the branded mid and upscale segment.

InterContinental has been in China since 1984, and is the company with the largest number of branded hotels in the country among big hotel operators. The company has had an early start in the country, and it has a big pipeline of new projects in China. This gives InterContinental the possibility to capitalize on an extraordinary market when it comes to growth opportunities.

A value price

Comparing valuation ratios for InterContinental and other alternatives in the industry, the stock is cheaper in terms of P/E ratio and dividend yield. This is particularly exciting considering that the company has superior profitability and better growth opportunities than its competitors due to its China exposure.

 Time to Check In

When looking for a hotel to spend our vacations, we usually consider different variables like quality, location and price. On these three aspects, InterContinental looks like the best alternative in the industry, so maybe it's time to check in at this five star hotel stock and profit from its long term potential.

 


acardenal has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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