Ashford Hospitality Trust Has Become an Intriguing Recovery Play

Meme stocks are often dismissed as an investment category, as the runup in these companies is not linked to their fundamentals. However, several meme plays are a worthwhile bet, like Ashford Hospitality Trust (NYSE:AHT). AHT stock is now looking like a strong recovery play.

AHT stock: the front of a hotel with ornate columns

Source: Shutterstock

Hotel-focused Ashford Hospitality Trust (AHT) has been a mature enterprise, churning out stable profits and healthy distribution for several years. For income investors, AHT stock was always a no-brainer.

Sure, hotels aren’t as exciting or futuristic as electric vehicles or artificial intelligence, but they get the job done. And while the hotel industry is suffering, we are slowly returning to our routines — meaning more travel and overnight stays at hotels.

Therefore, a case can be made for AHT stock as a recovery play, especially with the stock down nearly 75% in the last three months. It closed at $66.70 on June 9, and shares are now changing hands for about $15.

Bears contend the real estate investment trust (REIT) will fall further because of mammoth share issuances. But these investors are not factoring in the company’s history and growth prospects. This year and the next are expected to be healthy ones for the company, making this one of the best recovery plays out there.

Pedestrian Quarterly Results Pressure AHT Stock

Already struggling because of excessive stock issuances, AHT took another hit after its recent quarterly results. It saw a net loss of $69.5 million, or $4.35 per share, for the second quarter of 2021.

The consensus estimate was a loss per share of $3. The latest results broke a streak of three consecutive earnings beats for the REIT per CNBC data.

There is one other major piece of news that came out of the earnings report. AHT revealed nearly 98% of the hotels in its portfolio are cash traps under their respective loans. Hence, the lender will hold onto any excess cash produced by the hotels. That means the REIT will have to wait before recovering its payments.

When you couple that with its total debt of $3.88 billion, the road to recovery seems a long one. Plus, the $520.3 million of cash on hand as of June 30 is largely the result of equity sales, leading to a ballooning of outstanding share capital. So, some investors believe AHT will fuel the recovery with stock issuances.

These are all valid arguments, but you will get a more nuanced approach when you think of the overall industry.

Looking Forward, AHT Is on the Mend

By all accounts, the U.S. hotel industry is recovering. We recently saw a 61.3% spike in occupancy during the week ending Sept. 4 due to Labor Day and Hurricane Ida-related demand. Weekend occupancy was up 77%, the highest on record since the first week of August.

People are traveling more and will continue to do so around the major holidays. Ultimately, this means the top line will expand aggressively for AHT — and analysts agree.

Four of them tracked by Refinitiv have a growth consensus forecast of 55.4% and 132.8% for fiscal 2021 and 2022. It fits with the theme of recovery.

Covid-19 had a devastating impact on the economy. But the hotel industry was uniquely affected by this crisis. As the dust cleared, the stock started to move up with the overall REIT industry.

Retail traders took interest, and shares soared. AHT took advantage of the situation and issued stock, like AMC (NYSE:AMC) and Naked Brand (NASDAQ:NAKD).

Now, I believe only long-term investors should buy these shares. Remember, AHT has delivered excellent results for several years now. And as a REIT, it is an income investor’s delight. If you believe in the industry’s comeback, now is the time to buy AHT stock.

On the publication date, Faizan Farooque 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.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.


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