Here's Why Choice Hotels is a Top Pick for the Rest of the Year...

NYSE: CHH | Choice Hotels International, Inc.  News, Ratings, and Charts

CHH – Choice Hotels (CHH) is one of the top hotel stocks due to its unique business model which ensures high margins. Additionally, travel stocks will benefit from pent-up demand for travel in the coming quarters.

There are a lot of reasons for investors to be fearful of at the moment. War continues to rage between Ukraine and Russia. The Fed is laser-focused on bringing down inflation. This hawkishness and increasing concerns of a slowdown in economic growth have resulted in stocks plunging lower. 

Despite the increasing bearish sentiment, investors should remember that some of the best investment opportunities are birthed during these episodes of fear when markets are cascading lower. And, these opportunities are often found in finding companies, with improving fundamentals, that are exposed to bullish secular trends that are disconnected from economic or geopolitical factors.  

Today, I want to talk about such a company – Choice Hotels (CHH). CHH is benefiting from a massive boom in travel which should continue over the next couple of years. Further, the company has a favorable business model for investors and should continue seeing margins and earnings trend higher. Revenues have also returned to pre-pandemic levels even with many categories of travel far from pre-pandemic levels. 

Read on to find out why CHH is my growth stock of the week..

Company Background

While Choice Hotels may not be familiar to most people, its many brands certainly are. Some off the most well-known include Comfort Inn, Comfort Suites, Quality, Clarion, Clarion Pointe, Sleep Inn, Econo Lodge, Rodeway Inn, and MainStay Suites. As of the start of the year, the company had nearly 600,000 rooms in all 50 states and 40 countries.

It operates in two segments: Hotel Franchising; and Corporate & Other. It franchises all of its properties, and it also has a unit dedicated to selling its cloud-based, software for property management to other hoteliers. 

Operating Leverage

CHH gives investors operating leverage due to its business model. As a franchisor, it has higher profit margins than its peers. For instance, it had 26.9% profit margins last quarter, while competitors like Marriot (MAR) and Hilton (HLT) had profit margins of 7.9% and 7.1%, respectively. 

Another source of operating leverage is its growing, software business which is growing at a double-digit rate with increasing adoption and use. These types of SaaS products can become integral to operators which creates future opportunities to raise prices and provide more features for additional monetization. 

For these reasons, CHH is pretty unique among hotel stocks. 

Growth

This operating leverage means that CHH will see significant earnings growth as the travel market booms this summer and into 2023. Already, there are reports of record demand among airlines and cruises as the coronavirus continues to recede as a major issue. 

TSA travel data shows that travel volumes are about 10% below pre-pandemic levels despite impairment in business and international travel and airlines operating at a lower capacity. Given such developments, it’s likely that we are in the early innings of an unprecedented boom in travel with pent-up demand that should persist for many quarters. 

Another catalyst for CHH is that its margins are likely to expand due to growth in its software business. Further, the company is less affected by inflation due to its franchising model. Higher margins are supportive of multiple expansion, while the recovery in travel is supportive of revenue growth. 

POWR Ratings

CHH is a company with multiple positive tailwinds in place. Recent market volatility is creating an opportunity to buy shares at an attractive valuation.

In addition, the POWR Ratings are also very positive on the stock as it’s rated a B which translates to a Buy. B-rated stocks have posted an average annual return of 21.1% which compares favorably to the S&P 500’s average annual return of 8%. 

It also has strong component grades including an A for Quality due to its success in increasing margins and investor-friendly business model. It has a B for Growth which is consistent with its organic growth and the cyclical boost as pent-up demand for travel is unleashed in the coming years. Click here to see more of CHH’s POWR Ratings including component grades for Value and Momentum.

What To Do Next?

If you’d like to see more top growth stocks, then you should check out our free special report:

9 “MUST OWN” Growth Stocks

What makes them “MUST OWN“?

All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning blend of growth and value attributes that generates a catalyst for serious outperformance. 

Even more important, each recently earned a Buy rating from our coveted POWR Ratings system where the A rated stocks have gained +31.10% a year.

Click below now to see these top performing stocks with exciting growth prospects:

9 “MUST OWN” Growth Stocks


CHH shares were trading at $142.50 per share on Wednesday afternoon, up $1.57 (+1.11%). Year-to-date, CHH has declined -8.36%, versus a -10.95% rise in the benchmark S&P 500 index during the same period.


About the Author: Jaimini Desai


Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
CHHGet RatingGet RatingGet Rating

Most Popular Stories on StockNews.com


Updated 2024 Stock Market Outlook

The bull market continues to rage on with the S&P 500 (SPY) making new highs. That is the past...the question is what does the future hold? That is why 44 year investment veteran Steve Reitmeister provides this updated 2024 Stock Market Outlook to help you carve a path to outperformance the rest of the year. Read on below for the full story...

Top 4 Tech Giants Poised for Explosive Growth

Fueled by the ever-growing demand for advanced technological solutions across various sectors and ongoing innovation, the tech industry has robust growth prospects. Thus, it could be wise to invest in top tech stocks Dropbox (DBX), TTM Technologies (TTMI), Lantronix (LTRX) and AstroNova (ALOT) for potential growth. Continue reading…

3 Top Rated Software Stocks to Streamline Your Investments

The software industry is thriving with soaring demand, presenting ample investment opportunities. So, fundamentally solid software stocks ServiceNow (NOW), Autodesk (ADSK), and Docebo (DCBO) might be ideal buys for promising returns. Read on...

Biotech Investors: Should You Buy, Hold, or Sell Moderna (MRNA) and Arrowhead Pharmaceuticals (ARWR)?

Despite facing several challenges, the biotech sector thrives due to growing demand for effective treatments, consistent innovations, and a sustained demand for high-quality drugs and therapies. Let's assess whether one should Buy, Hold, or Sell biotech stocks Moderna (MRNA) and Arrowhead Pharmaceuticals (ARWR). Keep reading...

Investor Alert: “Buy the Rumor, Sell the News!”

Everyone knows that the Fed is going to cut rates at some point this year. That is the worst kept secret on the planet helping to explain how we keep making new highs for the for the S&P 500 (SPY). Unfortunately that creates an interesting predicament for stocks after rates are cut. Plus another hurdle in the 2024 Presidential election. Steve Reitmeister is here to share his insights on the market outlook along with a preview of his top 12 stocks to outperform. Read on for more...

Read More Stories

More Choice Hotels International, Inc. (CHH) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All CHH News