2 Reasons To Avoid InterContinental Hotels Group
With new cases of the coronavirus spiking in the US and worldwide .
With the already historic unemployment levels and job losses in recent months .
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital over time.
And this is huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
Both things are necessary to build wealth. But most only think of investing well.
Today I want to talk about the second part of things that few consider… Staying away from investments where you’ve got a high probability of losing money in.
2 Reasons To Avoid InterContinental Hotels Group
- It’s The Most Indebted Major US Based Hotel Operator
As a percentage of its balance sheet, InterContinental Hotels Group (IHG) is the most indebted of the 3 major US based hotel operators.
As of the most recent quarter its balance sheet is made up of 137.1%. That means the company has more debt than assets.
In other words, after subtracting total liabilities from total assets there’s a negative number. This means after subtracting debt from assets that the stocks equity – the shares you buy on the market – are worth less than $0.
And this is why you can’t measure its debt/equity ratio.
This is rare when you see this at an operating company. But it’s horrible.
I want to invest in safe stocks that will be around for decades to come to help me build wealth over the long term. This helps insure I lose as little money as possible over time.
Typically, this means I invest in companies that have little to no debt compared to their cash and equity.
IHG has the opposite problem – in too much debt on an individual basis. But also, when compared to its competitors.
- Hilton Worldwide Holdings (HLT) balance sheet is 105.8% total liabilities and its debt to equity ratio is also negative.
- And Marriott International (MAR) balance sheet is 100.1% in total liabilities and its debt to equity ratio is also negative.
The entire US hotel operator industry is massively indebted. And this makes the entire industry enormously risky right now.
But IHG is the most indebted company of the 3 major US based hotel operators. And this makes it the riskiest of them all.
Massive debt like this a gigantic problem on its own in normal times… But we’re not living in normal times.
Combine this with the ongoing and rapid increase in coronavirus cases worldwide and this makes IHG even more dangerous.
2. Uncertainty Related To The Coronavirus
This all circles back to the beginning and the coronavirus.
As of May 2020, airline travel was estimated to fall by $314 billion – or 55% from 2019 levels.
Revenues worldwide for hotels are down between 40% and 60% due to far fewer people traveling and staying at hotels.
An estimated 70% of rooms are vacant in hotels as of May.
And it’s expected that hotel operators alone have already cut more than 4 million jobs and lost $21 billion in revenue.
Many industries are getting crushed due to the coronavirus related factors… But travel, airlines, and hotels are among the worst ones hit.
And with coronavirus cases rapidly increasing in the US and worldwide as of this writing, hotels will continue getting crushed for the foreseeable future.
I recommend you stay far away from this entire industry for the time being for the reasons above. But especially stay away from IHG due to its enormous amount of debt and liabilities.
Its large debt load makes the company vulnerable in normal times…
But we’re not living in normal times.
The far lower revenue, profits, and cash flows stemming from far lower travel and stays at hotels during this pandemic put this entire industry at risk… But especially IHG.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.