Red Lion Hotels Corporation (NYSE:RLH), a hotels, restaurants and leisure company based in United States, received a lot of attention from a substantial price increase on the NYSE in the over the last few months. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at RLH’s outlook and value based on the most recent financial data to see if the opportunity still exists. Check out our latest analysis for Red Lion Hotels
Is RLH still cheap?
According to my relative valuation model, RLH seems to be currently fairly priced. In this instance, I’ve used the price-to-book (PB) ratio given that there is not enough information to reliably forecast the stock’s cash flows, and its earnings doesn’t seem to reflect its true value. I find that RLH’s ratio of 1.3x is trading slightly below its industry peers’ ratio of 2.2x, which means if you buy RLH today, you’d be paying a relatively fair price for it. And if you believe RLH should be trading in this range, then there isn’t much room for the share price grow beyond what it’s currently trading. In addition to this, it seems like RLH’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because RLH’s stock is less volatile than the wider market given its low beta.
Can we expect growth from RLH?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. In the upcoming year, RLH’s earnings are expected to increase by 56.29%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What this means for you:
Are you a shareholder? It seems like the market has already priced in RLH’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at RLH? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping tabs on RLH, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for RLH, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.