Choice Hotels Is Leaving Investors With Few Choices But to Hold On

Choice Hotels International (NYSE:CHH) has been a hard stock to figure out. On the face of it, an earnings report in which the company missed slightly on earnings and by a little more in terms of revenue would be reason to pull the stock down. And it is down slightly since the report, but only about 3%.  

To get an accurate look at what’s happening with CHH stock, it’s good to pull back a little. The stock is up 108% from its pandemic low closing price of $54.15 hit on April 3, 2020. And the stock price at the time of this writing is above its pre-pandemic level.  

But EPS and revenue remain below pre-pandemic levels. That’s to be understood. Although travel is resuming as the pandemic subsides, things are not back to normal and while the company is hoping there will be more clarity by fall, they didn‘t choose to issue forward guidance. Which means it’s likely that CHH stock is priced too high. 

The Changing Face of Travel 

An interesting insight I got from the company’s earnings call was the effect of remote work may have on the hospitality sector. Specifically, the ability of employees to work from anywhere is creating the opportunity to book mid-week travel. Choice Hotels is reporting unusually high weekday occupancy levels. 

And the company went on to say that this is a trend that they believe may have some legs even as the economy more fully reopens by fall. That means that the periods of time that have traditionally been the domain of the business traveler may now get more blurred.  

However, the company also said they are dealing with a shortage of workers and expect that these staffing concerns will remain for as long as the extended unemployment compensation stays in place.  

Lack of Forward Guidance Is Not Unusual, But Concerning 

Choice Hotels is being cautiously optimistic in their message to analysts. Unfortunately that may work to their detriment in the short term. For example, the company did not provide forward guidance in their recent earnings report.  

That could cause some analysts to be skeptical about the robust growth forecast.  

The Technicals Suggest a Hold Is In Order 

I normally don’t like to recommend a hold. It’s sort of like a tie in sports and who wants that? But in the case of Choice Hotels, I think that kind of a call is warranted.  

There’s a lot to like about CHH stock. The company’s debt was one of its key negative points. However the company continues to build up its cash profile and so there’s nothing to suggest that the debt is unmanageable.   

And Choice Hotel generates 99% of its revenue from franchises. And over 75% of the chain’s total rooms are based in the United States. That’s important because it appears that international travel will remain challenging for the rest of 2021.  

If the hotel chain can make good on its plan to reinstate its dividend in July 2021 that may attract some income investors. But right now, there’s not a lot to support the stock’s forward P/E ratio of 35.47.  

At the same time, there doesn’t appear to be much of a penalty for buying CHH stock either. If it holds its level of support 

There doesn’t seem to be a lot of conviction among investors. But a look at the stock chart shows that there is a nice range of support from around $109.50 to about $110.75. And the 20-day simple moving average is still above the 50-day moving average which is a bullish indicator. Still, CHH appears to be range-bound and lacking a catalyst to pull it higher.