InnSuites Hospitality Trust (AMEX:IHT), a USD$23.38M small-cap, operates in the consumer discretionary industry, whose performance is predominantly driven by consumer confidence, which is linked to employment and wage rates. Purchasing power is also a factor of interest rates and lending standards by financial institutions. These macro elements determine how fast, and how often, consumers buy leisure products. The leisure service sector is also undergoing significant structural shifts resulting from technology applications. Leisure companies are able to engage with its customers faster and easier through online and mobile channels, which has been a positive driver for the industry. Consumer discretionary analysts are forecasting for the entire industry, a positive double-digit growth of 13.26% in the upcoming year , and a strong near-term growth of 15.75% over the next couple of years. This rate is more than double the growth rate of the US stock market as a whole. Is now the right time to pick up some shares in leisure companies? In this article, I’ll take you through the sector growth expectations, and also determine whether InnSuites Hospitality Trust is a laggard or leader relative to its consumer discretionary sector peers. Check out our latest analysis for InnSuites Hospitality Trust
What’s the catalyst for InnSuites Hospitality Trust’s sector growth?
Although there is higher competition for consumer leisure time, due to the rise of new activities such as online streaming and mobile games, the whole industry has been expanding in various channels to better interact with its consumer. Traditional incumbents are forced to adapt or fall behind. In the past year, the industry delivered growth in the teens, beating the US market growth of 10.83%. InnSuites Hospitality Trust lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means InnSuites Hospitality Trust may be trading cheaper than its peers.
Is InnSuites Hospitality Trust and the sector relatively cheap?
Leisure companies are typically trading at a PE of 25x, relatively similar to the rest of the US stock market PE of 20x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 10.90% on equities compared to the market’s 10.46%. Since InnSuites Hospitality Trust’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge InnSuites Hospitality Trust’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? InnSuites Hospitality Trust recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto InnSuites Hospitality Trust as part of your portfolio. However, if you’re relatively concentrated in leisure, you may want to value InnSuites Hospitality Trust based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If InnSuites Hospitality Trust has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the leisure industry. However, before you make a decision on the stock, I suggest you look at InnSuites Hospitality Trust’s future cash flows in order to assess whether the stock is trading at a reasonable price, as well as other important fundamentals such as the company’s financial health in order to build a holistic investment thesis.
For a deeper dive into InnSuites Hospitality Trust’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other consumer discretionary stocks instead? Use our free playform to see my list of over 100 other consumer discretionary companies trading on the market.