Choice Hotels International (CHH): Is the Current Valuation Reflecting Fading Momentum?

It is hard to ignore when a stock like Choice Hotels International (CHH) sees a multi-month slide that might be giving some investors pause. Even without a dramatic news event as a catalyst, a sustained move lower is often enough to spark questions. Are we seeing the start of a longer-term re-rating, or is this just the kind of dip that opportunistic investors keep an eye out for? Looking at the bigger picture, Choice Hotels International has slipped about 5% over the past year, with its decline accelerating recently as shares have given back nearly 19% since the start of the year. This underperformance comes despite the company’s double-digit annual revenue growth, as investors weigh the potential risks ahead against continued profitability. Compared to other periods, momentum definitely seems to be fading, even as the business posts solid financial results. After this kind of stretch, investors have to wonder whether Choice Hotels International is trading at an attractive valuation that reflects too much pessimism, or if the market is wisely factoring in the possibility of tougher times ahead.

Most Popular Narrative: 13.7% Undervalued

The prevailing narrative suggests that Choice Hotels International is currently undervalued, with a fair value estimate noticeably above its present share price based on future growth expectations.

Strong international expansion, including new direct franchising in Canada, a master franchising deal in China targeting 10,000 rooms, and increased presence in EMEA and South America, is set to capture rising global travel demand from growing middle-class populations. This is expected to drive significant future revenue and EBITDA growth compared to historical expectations.

Curious how ambitious international growth, loyal repeat customers, and a strategic business model power this bullish view? Beneath the headline, analysts factor in substantial increases for revenue and earnings, along with a key profit multiple well below what you might expect from its sector. Uncover which assumptions are fueling this double-digit undervaluation and the numbers driving a much higher fair value forecast. Do not miss what could be behind the next major move.

Result: Fair Value of $132.93 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, softness in international travel and ongoing margin pressure could quickly challenge the optimistic outlook for Choice Hotels International’s future growth and valuation.

Find out about the key risks to this Choice Hotels International narrative.

Another View: What the DCF Model Says

While analyst forecasts support an undervalued outlook, our DCF model reaches a similar conclusion using discounted future cash flows. However, with any model, the outcome depends on your confidence in the inputs. Could different growth or risk assumptions lead to a different result?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Choice Hotels International for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Choice Hotels International Narrative

If you see things differently or want to dig into the data on your own terms, building your own view is quick and straightforward. Do it your way

A great starting point for your Choice Hotels International research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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