Will AHT Stock See a Rerating Like AMC?
By Mohit Oberoi, CFAJun. 2 2021, Published 8:21 a.m. ET
Ashford Hospitality (AHT) stock has been on a fire over the last month. It rose over 20 percent on June 2 and is now up 89 percent for the year. Is AHT still a good stock to buy or its too late to buy this reopening name?
Looking at the pre-market price action on June 2, AHT stock looks set to break above $5 and get out of the penny stock category. The SEC classifies stocks below $5 as penny names.
Ashford Hospitality preferred stock
Ashford Hospitality has been converting its preferred stocks to common stocks. While this would lead to dilution and an increase in its outstanding common shares, it would also mean lower fixed costs. During the earnings call for the first quarter of 2021, management expressed its intent to either convert or call all of its preferred stocks.
AHT stock chart
Ashford Hospitality's earnings
During the earnings call for the first quarter of 2021, Ashford Hospitality pointed to several green shoots for the business. It posted a positive hotel EBITDA in the quarter for the first time since the first quarter of 2020. Also, the occupancy rates have been increasing gradually and reached 49 percent in March. Its select-service hotels had an occupancy level which was 70 percent of the comparable period in 2019.
The company’s full-service hotels had a 52 percent occupancy in the first quarter of 2021 compared to the same period in 2019. The company has also extended its debt maturity and lowered the cost base. Clearly, things are moving in the right direction and the stock’s price action reflects that.
AHT stock prediction
Analysts don’t seem too bullish on AHT stock amid its recent rally. According to MarketBeat, the stock’s consensus target price is $3.28, which is a discount of 33 percent over the current prices. That said, Wall Street might be too bearish on the stock since it looks like a good way to play the reopening story and the pent-up travel demand.
Why AHT looks like a good reopening stock to buy
AHT looks like a good reopening stock to buy. There's visible pent-up demand for leisure as well as business travel, which would lead to incrementally higher occupancy rates for Ashford Hospitality. Currently, 63 percent of the U.S. population above the age of 18 and older have received at least one dose of a COVID-19 vaccine. President Biden has set a task to get that number to 70 percent by July 4.
The U.S. economy is looking strong and could continue its momentum in the near term. The strong economy combined with pent-up travel demand bodes well for hospitality names like AHT.
Could AHT repeat AMC's magic?
Meanwhile, AMC Entertainment is also a reopening play. The stock has risen sharply in 2021, partially due to pumping and the short squeeze triggered by Reddit Group WallStreetBets. AHT’s short volume isn't much and as of May 14, its days to cover ratio was around 0.4.
From a fundamental perspective, AHT looks like a good bet to play the reopening story. If you want to travel after a year of crippling restrictions, consider buying names like AHT, which will benefit from changing consumer behaviour after COVID-19 vaccinations.
