What’s Up With Red Lion Hotels’ Stock?

RLH: Red Lions Hotels logo
RLH
Red Lions Hotels

The shares of Red Lion Hotels (NYSE: RLH) have lost 60% of their value since the release of third-quarter results last year due to the termination of multiple franchise contracts. The stock lost 55% on November 8 as the company reported a 10% fall in royalty fees and subsequently led to the CEO’s resignation. While the company’s stock performance depends on the expansion of its franchise business, its current valuation multiple has trended steadily lower over recent years because of a continuous decline in revenues. Since June 1, the stock has been trending upwards as the company announced the appointment of a new Chief Financial Officer.

Our dashboard Why Red Lion Hotels Stock moved -77% highlights the historical trends in revenues, margins, and stock price, and we discuss more below.

Red Lion Hotels’ asset-light growth strategy went wrong in 2019

  • In 2016, the company reported $148 million in total revenues, with $7.5 million in royalty fees and 68,900 rooms under franchise agreements.
  • Royalty fees surged by 200% from $7.5 million in 2016 to $22.3 million in 2018 as the company added 15k rooms to its franchise segment.
  • Due to contract termination by multiple third-party hotel owners, the company lost 17k franchise rooms in 2019 – shrinking the total room portfolio by 20%.
  • With a 55% drop in the company’s owned hotel revenues from asset divestitures since 2016, the shareholder returns primarily depend on the future expansion of RLH’s franchise business.
  • Also, the high SG&A expenses have been a drag on the company’s net margins as the growth stalled, resulting in a 20% reduction of stockholder’s equity in 2019.
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What’s the likely trigger and timing to the revival of RLH’s franchise business?

With 9 million infections and 0.4 million deaths, the coronavirus crisis has affected the livelihoods of people across the world. Industries such as air travel, hotel, and oil & gas have been affected the most. However, improving recovery rates and easing lockdown measures is likely to give an impetus to the stalling global economy. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of coronavirus impact on a diverse set of Red Lion Hotels’ peers, including Hyatt Hotels and MGM Resorts. The complete set of coronavirus impact and timing analyses is available here.

While RLH stock has underperformed broader markets and is likely to remain under pressure in the near- to mid-term, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

 

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