Is Ashford Hospitality Stock a Buy Right Now?

Ashford Hospitality stock more than tripled on Nov. 9. Is AHT a good stock to buy at these prices?

Mohit Oberoi, CFA - Author

Nov. 10 2020, Published 8:45 a.m. ET

is aht a good stock to buy
Source: istock

Ashford Hospitality stock gained a massive 228 percent on Nov. 9. However, despite the spike, the stock is still down 83 percent for the year. Is AHT a good stock to buy despite the surge on Nov. 9? 

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What is Ashford Hospitality Trust?

Ashford Hospitality Trust is a REIT based in Dallas. The company invests in upscale hotel properties and has brands like Hilton, Marriott, Crowne Plaza, Hyatt, Sheraton, and Courtyard under its portfolio. In 2020, the COVID-19 pandemic has taken a toll on the hospitality sector.

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Looking at Ashford’s third-quarter earnings that were released last month, the company reported revenues of $93 million—down 75 percent from the same quarter last year. AHT reported a net loss of $109 million in the quarter. To put that figure into perspective, even after tripling on Nov. 9, AHT stock had a market capitalization of only about $69 million.

AHT’s financial position is very precarious. The company had cash and cash equivalents of only $120.9 million and restricted cash of $89.5 million. Ashford Hospitality reported adjusted funds from operations of -$62.3 million in the quarter. Also, the company had mortgage loans of about $3.7 billion at the end of the third quarter.

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Looking at the cash burn rates, Ashford would have to look at raising more cash to fund its cash burn. The current cash holdings might not last more than a few quarters. However, looking at the current markets, there aren't many avenues available for the company to raise cash.

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Why is AHT stock going up?

On Nov. 9, there was a bounce-back in the beaten-down stocks that have been hit badly by the coronavirus pandemic. Positive news flow about Pfizer’s vaccine candidate led to a sector rotation on Nov. 9. Investors exited the so-called “stay-at-home” stocks and took positions in companies that would benefit most if there's a coronavirus vaccine. 

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The hospitality, aviation, and entertainment sectors would benefit if there's a coronavirus vaccine. However, there wasn't specific news about AHT stock on Nov. 9. AHT stock was trading over 10 percent lower in pre-market on Tuesday, Nov. 10 after the gains.

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Should you buy AHT stock?

AHT stock is a bet on the COVID-19 vaccine. If there's a vaccine soon, it could lead to more upside in AHT stock. However, if there isn't a successful vaccine soon, AHT could find it hard to continue its operations. There has already been a wave of bankruptcies among mall operators due to lower revenues.

AHT is a penny stock and has a very high-risk profile. Investors should only consider the stock if they are comfortable with high risk including a complete loss of capital. However, AHT stock could be a good way to play the COVID-19 vaccine and the reopening story.


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