Choice Hotels International Inc (CHH, Financial) has experienced a daily loss of 3.92% and a 3-month loss of 1.41%. Despite this, the company's Earnings Per Share (EPS) stands at 5.56. The question that arises is whether the stock is modestly undervalued. This article will provide an in-depth analysis of Choice Hotels International's valuation, encouraging readers to delve into the financial intricacies of the company.
Company Introduction
Choice Hotels International, as of Dec. 31, 2022, operated 628,000 rooms across 13 brands addressing the economy and midscale segments. The company's stock price is currently $120, with a market cap of $6 billion. When compared to the GF Value of $166.72, it appears that the stock may be modestly undervalued. This assessment paves the way for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
Choice Hotels International's stock appears to be modestly undervalued based on the GF Value calculation. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Choice Hotels International's cash-to-debt ratio is 0.03, which ranks worse than 93.6% of 813 companies in the Travel & Leisure industry. However, the overall financial strength of Choice Hotels International is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Choice Hotels International has been profitable 10 years over the past 10 years. Its operating margin of 26.76% is better than 90.29% of 814 companies in the Travel & Leisure industry. Overall, GuruFocus ranks Choice Hotels International's profitability as strong.
Growth is probably one of the most important factors in the valuation of a company. Choice Hotels International's 3-year average revenue growth rate is better than 72.89% of 760 companies in the Travel & Leisure industry. Its 3-year average EBITDA growth rate is 15.9%, which ranks better than 65.56% of 604 companies in the Travel & Leisure industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Choice Hotels International's return on invested capital is 16.8, and its cost of capital is 9.58.
Conclusion
In conclusion, the stock of Choice Hotels International appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 65.56% of 604 companies in the Travel & Leisure industry. To learn more about Choice Hotels International stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
