Why I’d buy this multibagging stock that’s returned 50% p.a.

This stock has already produced huge returns for investors and I believe that this can continue.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Growth

Image: Public domain

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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. 

Should you invest £1,000 in Berkshire Hathaway right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Berkshire Hathaway made the list?

See the 6 stocks

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. 

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Older couple walking in park
Investing Articles

Could £300 a month invested in US and UK shares reach a million by retirement?

Could an investor retire with a million pounds just by dedicating £300 a month to US and UK shares? Mark…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

Is £800 enough to start an ISA?

Is it worth bothering with an ISA with less than £1,000 to spare? This writer believes it may be --…

Read more »

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »