The argument that favors investing in Ashford Hospitality Trust (NYSE:AHT) stock is fairly straightforward. The hospitality REIT that invested in upscale hotels should rebound as the economy opens. From a lofty 52-week high of $77.90, AHT stock today sits pennies below $14 a share.
Thus, investors in AHT shares simply sit back and watch as share prices move upward from their historic lows. It’s a tricky proposition, though. The company appears to be in very bad shape and carries a significant debt load.
How did things get so bad for Ashford Hospitality Trust in the first place?
AHT Stock Among Hardest Hit
It’s no secret that large companies with high fixed costs get slaughtered in economic downturns. The pandemic’s forced shuttering of businesses dealt a particularly harsh blow to travel operators and the lodging industry.
Massive companies like American Airlines (NASDAQ:AAL) and Carnival (NYSE:CCL) simply have little recourse in such collapse: Their large asset bases are forced to sit idle while fixed costs do not abate. Ashford Hospitality Trust was no different. The company maintains a portfolio of over 100 hotel properties.
So, there was little it could do to stop the losses during the pandemic.
It is very much analogous to watching a large animal bleed out as a relentless pack of predators do what they must do to survive. You want to root for the prey to escape, or at least I usually do. So, in this case, I’ll make an argument that a small investment in Ashford Hospitality Trust is warranted.
But I should add a caveat to that statement. This is truly a bet because even the most optimistic outlook has serious issues.
That said, let’s take a balanced look at what is happening to the company from a financial perspective. There’s some good, some bad and some really ugly.
Latest Earnings Show Bright Spots
The good news for the company is that things are looking brighter in the second quarter of this year based on revenues. That’s probably not a big surprise given that Q2 of 2020 coincided with the first three months of the pandemic.
During that period Ashford Hospitality Trust only managed $43.07 million in revenues, leading to a $242 million net loss.
A year later — and this is the bright spot — the company posted $193.4 million in revenues. However, that again led to a net loss, though this time a much more modest $65.26 million.
The other bright spot is that the company has managed to significantly reduce its loss through the first half of this year compared to last. The $344 million loss it suffered through the first six months of 2020 has been held to $170.6 million.
That’s really as good as the news gets for investors. The reason that speculative investors should be interested relates to AHT stock pre-pandemic prices. Recall that current $14 price per share? Just prior to the pandemic they traded above $200.
So if that slight bit of good news from the increased revenues gives you reason to believe things will get better, put a chunk of change toward AHT. There’s always a chance it could retest those pre-pandemic prices in the not-too-distant future.
The four analysts following the REIT have more modest targets, with a median 12-month price of $25.50, in a range of $46-$17.
Consider the Bad and the Ugly
The bad news relates to a recent reverse stock split. And the ugly news relates to debt.
The company undertook a 1-for-10 reverse stock split on July 16. The company had already been on a downward slide prior, but the news likely didn’t help. Reverse stock splits generally signal distress as they serve to artificially raise prices.
As InvestorPlace contributor David Moadel wrote ahead of that split, “They can lead to further declines in the share price, followed by more reverse stock splits — it’s an awful, vicious cycle.”
Ashford Hospitality Trust also has a significant debt load. Pages 8 and 9 of its most recent earnings report outline the debt and its maturity. This year the company only has a $78 million note due, which will total just under $92 million with amortization fees included. But in 2024 and 2025 the company has notes due of $500 million, and a whopping $2.62 billion, respectively.
So, for investors brave enough to bet on a short term bump in price based on economic reopening, beware longer-term implications.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.