Investors should keep their eyes out for this diamond in the rough.
Time-share operator Diamond Resorts International has filed for an initial public offering. The company plans to list on the New York Stock Exchange under the ticker “DRII,” and the lead underwriters include Credit Suisse (CS), Bank of America Merrill Lynch (BAC), JPMorgan (JPM) and Guggenheim Securities.
Diamond is the mastermind of Stephen Cloobeck, who started the company back in 2007. Cloobeck has spent more than 25 years in the time-share business, having developed the Polo Towers Resort and designed Marriott’s (MAR) Grand Chateau vacation ownership resort.
Diamond has an ownership base of more than 490,000 families and a network of 295 vacation destinations in places like the United States, Hawaii, Canada, Mexico and the Caribbean. There also are four cruise itineraries.
Yet Diamond has a bit of a twist on the time-share model, which traditionally is a weeks-based vacation ownership linked to a specific resort. Diamond uses a points-based system that allows customers much flexibility in terms of the location, season and duration of the vacation. The points are part of the overall ownership of the property, but also provide additional services and access.
Diamond still uses the time-honored approach to getting customers — marketing “tours.” The company gets prospects from heavy mailings and telemarketing campaigns, as well as from families who take short trips to the resorts. The company’s marketing has had lots of success in terms of close rates and transaction size.
That formula has resulted in solid financials. From 2011 to 2012, revenues jumped from $391 million to $523.7 million, while net income climbed from $10.3 million to $13.6 million.
Going forward, Diamond plans to boost growth with acquisitions of new properties, which essentially means entering attractive markets in Asia. For example, the company recently struck a joint venture with Dorsett Hospitality International, a major hotel developer and operator in China, Japan, Malaysia and Singapore.
In addition to international opportunities, there still appears to be lots of growth opportunities in the U.S. As baby boomers retire, they likely will look for unique options for travel. Also, the penetration rate of time-shares is still fairly low, at less than 8% of the U.S. households, according to a study from AFI.
Given the revenue history and growth potential, Diamond could have a sparkling IPO.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.