Here's Why You Should Buy Red Lion Hotels (RLH) Stock Now

Shares of Red Lion Hotels Corporation (NYSE:RLH) have gained 20.2% over the last three months, substantially outperforming the 0.1% decline of its industry. We believe higher earnings growth, given improving industry conditions, is likely to aid the stock in maintaining its solid performance in the quarters ahead.

Also, the company has an impressive earnings surprise history, with an average positive surprise of 35.69% in the trailing four quarters.

Further, the Zacks Consensus Estimate for current-year’s loss narrowed 5% in the last 60 days, thus substantiating the stock’s Zacks Rank #2 (Buy).

What Makes Red Lion Hotels a Solid Pick?

Solid Estimated Sales & EPS Growth: Red Lion Hotels’ current-year revenues are expected to grow 12.6% year over year, widely outpacing the industry’s average projected growth of 2.8%.

Strong top-line growth is likely to translate to decent bottom-line performance as well. Thus, the company’s projected EPS growth is a healthy 2.6%.

Arguably, nothing is more important than earnings growth as surging profit levels is often an indication of strong prospects (and stock price gains) for the company in question.

Reasonably Valued Stock: Red Lion Hotels has an EV/EBITDA ratio of 11.5, which is lower than the industry average of 14. The EV/EBITDA multiple (Enterprise Value/ EBITDA) is capital structure-neutral, as it also takes into account the level of debt on a company’s balance sheet, not just its equity. Since the hotels industry is highly capital-intensive, it is one of the most useful valuation ratios.

Also, Red Lion Hotels’ P/B (Price-to-Book) ratio is 0.97, which is lower than the industry average of 2.95.

Further, the company has a VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 make solid investment choices.

Growth Initiatives: Red Lion Hotels is mainly focused on revenue and profitability improvements in its Franchise segment as a primary factor of its growth strategy. Management believes that this new focus on the high margin and lower capital-intensive nature of the franchise business is likely to create additional value for shareholders.

Additionally, technological advancements in the form of new check-in, checkout and digital key applications are expected to enhance guest experience, thus improving occupancy. The company’s Hello Rewards app also adds to the same.

Favorable Industry Conditions: Given the improving economic indicators in the United States, the demand for hotels has started to grow. Though increasing supply growth is expected to limit occupancy levels, overall demand in the country is anticipated to remain solid on the back of firming group travel. Consequently, hotel chains such as Red Lion Hotels — which primarily operates in the United States – are expected to gain from such boosts in demand.

Currently, the Zacks Hotels & Motels industry ranks in the Top 14% out of more than 250 industries.

Key Picks

Some other top-ranked stocks in the industry include Marriott Vacations Worldwide Corporation (NYSE:VAC) , China Lodging Group, Limited (NASDAQ:HTHT) and Callaway Golf Company (NYSE:ELY) . While Marriott Vacations and China Lodging flaunt a Zacks Rank #1, Callaway Golf sports the same bullish rank as Red Lion Hotels. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the trailing four quarters, Marriott Vacations, China Lodging and Callaway Golf pulled off an average positive earnings surprise of 3.59%, 33.68% and 23.29%, respectively.

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