Baron Generational Growth Fund on Choice Hotels International, Inc.
Thesis
The Fund believes Choice Hotels offers an attractive combination of improving fundamentals and a historically depressed valuation. Revenue per available room accelerated during the quarter and management reported stronger new hotel contract signings. The Fund expects this momentum to support higher margins and cash flow, while Choice's balance sheet and below-target leverage provide capacity for increased share repurchases. Despite those improving fundamentals, the stock continues to trade at historically low valuation multiples, creating what the Fund sees as an attractive disconnect.
“We believe this disconnect leaves the shares attractive at current levels.”
Key risks
- Hotel demand and revenue per available room could weaken.
- New hotel contract signing momentum could fail to translate into the expected earnings and cash flow growth.