Stock Analysis

The five-year underlying earnings growth at American Hotel Income Properties REIT (TSE:HOT.UN) is promising, but the shareholders are still in the red over that time

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TSX:HOT.UN
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We think intelligent long term investing is the way to go. But unfortunately, some companies simply don't succeed. To wit, the American Hotel Income Properties REIT LP (TSE:HOT.UN) share price managed to fall 71% over five long years. That's an unpleasant experience for long term holders. And it's not just long term holders hurting, because the stock is down 36% in the last year. More recently, the share price has dropped a further 20% in a month.

After losing 14% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.

However if you'd rather see where the opportunities and risks are within HOT.UN's industry, you can check out our analysis on the CA REITs industry.

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, American Hotel Income Properties REIT moved from a loss to profitability. That would generally be considered a positive, so we are surprised to see the share price is down. Other metrics might give us a better handle on how its value is changing over time.

We note that the dividend has fallen in the last five years, so that may have contributed to the share price decline. On top of that, revenue has declined by 5.7% per year over the half decade; that could be a red flag for some investors.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
TSX:HOT.UN Earnings and Revenue Growth September 30th 2022

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. So it makes a lot of sense to check out what analysts think American Hotel Income Properties REIT will earn in the future (free profit forecasts).

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, American Hotel Income Properties REIT's TSR for the last 5 years was -59%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!

A Different Perspective

We regret to report that American Hotel Income Properties REIT shareholders are down 33% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 3.5%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 10% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example - American Hotel Income Properties REIT has 4 warning signs (and 2 which can't be ignored) we think you should know about.

American Hotel Income Properties REIT is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

Valuation is complex, but we're helping make it simple.

Find out whether American Hotel Income Properties REIT is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About TSX:HOT.UN

American Hotel Income Properties REIT

American Hotel Income Properties REIT LP (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U), or AHIP, is a limited partnership formed to invest in hotel real estate properties across the United States.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation6
Future Growth0
Past Performance0
Financial Health3
Dividends4

Read more about these checks in the individual report sections or in our analysis model.

Very undervalued average dividend payer.

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