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 Aston Martin 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 Aston Martin 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 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation 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.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Investing Articles

Here’s why Tesla stock just rocketed 22.7%! Is it time to buy?

This writer wonders whether the news that sent Tesla stock soaring yesterday is a true gamechanger for the electric vehicle…

Read more »

Investing Articles

2 quality UK stocks to consider buying as share prices rally

With UK stocks moving higher, it might look as though investors with cash on hand have missed their chance. But…

Read more »

Investing Articles

How much £10,000 invested in Lloyds shares is forecast to be worth in 12 months

Harvey Jones is looking past today's stock market volatility to see where Lloyds shares may stand in a year's time.…

Read more »

Investing Articles

How Warren Buffett stays ahead of the stock market

When share prices fall, everyone suddenly wants to be like Warren Buffett. But what’s the secret to the Berkshire Hathaway…

Read more »

Investing Articles

Cheap UK dividend shares to consider buying right now

We're only just past the first quarter of 2025, but it already looks like the year could be another good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

What the heck is going on with the Barclays share price now?

The Barclays share price surged 25% as the market open on 10 April. Once again, the volatility’s been driven by…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

Are Tesco shares a screaming buy after sinking to 9-month lows?

Tesco shares continue to experience price weakness as signs of mounting competition grow. But is it now too cheap to…

Read more »