Why Choice Hotels International Inc.'s Shares Plunged 10% in May

By Markets Fool.com

What: Shares of Choice Hotels International Inc. fell 10.4% in May, according to data provided by S&P Global Market Intelligence, after the company reported less-than-stellar earnings.

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So what: Revenue was up 18% in the first quarter to $207.1 million, but net income dropped from $21.6 million to $19.6 million, or $0.35 per share. Domestic revenue per available room was up just 1.2%, a slow rate in the hotel business.

Still, management thinks revenue per available room will grow between 3.75% and 4.5% for the full year, so there are optimistic expectations. You can see that in the guidance of $2.30 to $2.35 in earnings for the full year as well.

Now what: Given slow revenue per room growth, I don't think Choice Hotels commands a premium on the market. But shares are trading at 20 times the top end of earnings estimates, which seems lofty in today's environment. If management can pick up growth in the second half of the year, shares may show some value, but for now, this is a stock that looks expensive for long-term investors.

The article Why Choice Hotels International Inc.'s Shares Plunged 10% in May originally appeared on Fool.com.

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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