As the IHG share price soars, does it have more upside?

Intercontinental Hotels Group (IHG) share price has done well this year, rising by over 24% in London. It soared to a high of 8,345p, its highest point since July 17, while its American ADR has jumped to a record high of $114.5. 

Hotel groups are doing well

IHG’s performance has coincided with that of other hotel companies like Hilton, Hyatt, Marriott, and Accor, which have risen by over 28.7%, 21.4%, and 12.2%, respectively. 

This performance happened as most of these companies shifted their business model to focus on the asset-light business management industry. 

It also happened amid the strong growth in tourism and business travel now that the world has moved past the Covid-19 pandemic.

For starters, IHG is one of the biggest hotel groups in the world. Its luxury and lifestyle collection is made up of companies like Regent, Intercontinental Hotels & Resorts, Kimpton, and Hotel Indigo.

The company also owns premium brands like Voco, Even, and Crown Plaza, while its essential collection includes Holiday Inn, Garner, and Avid. Its other brands are Candlewood Suites and Staybridge Suites.

Like other hotel groups, its revenue dropped from $3.45 billion in 2019 to over $1.75 billion in 2020 as governments pushed hotels to close their businesses. This growth has happened as the number of its hotel rooms jumped to 955k while its hotels grew to 6,430. 

Since then, it s revenue has grown in each of the last few years. Its annual revenue rose to $2.31 billion in 2021 followed by $3.06 billion and $3.7 billion in the last two financial years.

IHG’s business model has ensured that its margins remain significantly higher than its competitors. It has a gross profit margin of 50% and a net income margin of 16.7%, higher than the industry average of 4.53%.

IHG’s revenue growth is continuing

The most recent financial results show that IHG’s growth continued in the first half of the year. Its revenue rose to $1.10 billion from $1.03 billion in the same period in 2023.

Also, its profitability continued growing, with its earnings before interest and tax rising to over $535 million. 

The numbers also showed that its fee business revenue was $850 million while its fee margin expanded to 60.6%.

Most of this growth was driven by groups followed by leisure and business, with Americas being the biggest drivers.

Analysts expect that IHG’s business will continue to do well in the coming years even as the revenge traveling trends starts to slow. 

At the same time, it has continued to return funds to its shareholders. Its share buybacks in the year’s first half was over $800 million. Together with share buybacks, the company will return $1 billion to shareholders, a big number since it has a market cap of over $17 billion. 

The challenge, however, is that the recent stock rally has left behind a relatively overvalued company. IHG has a forward price-to-earnings multiple of 24, higher than the industry’s median of 18, and an EV to EBITDA multiple of 20. 

IHG share price analysis

The daily chart shows that the IHG stock price has been in a strong bull run in the past few months, and is approaching the important resistance point at 8,495p, its highest point on July 15. 

The stock has moved above the Ichimoku cloud indicator and the 50-day and 100-day moving averages. 

Also, oscillators like the Relative Strength Index (RSI) and the Stochastic Oscillator have continued soaring. The two have moved to the overbought levels.

Therefore, the path of the least resistance for the IHG share price is bullish, with the next target to watch being at 8,650, its highest point on record. 

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