One concern is an Office of Fair Trading investigation into claims that the group broke competition laws by fixing room rate discounts with two online brokers, a charge it denies. If the OFT concludes that InterContinental has breached the Competition Act, it can impose penalties of up to 10% of its turnover. Further strife in Europe, and U.S. government spending cuts, could also do some damage.
InterContinental has been a steady long-term performer, up 38% over 12 months, and 140% over five years. Earnings per share growth was a modest 3% in 2012, but is expected to rise to 14% and 11%, respectively, this year and next. I like its fat 33% operating margin, but its 2.9% yield underperforms the FTSE 100 as a whole, which offers 3.5%. The figure no investor can ignore with this stock is its price-to-earnings ratio, currently around 20 times earnings. That looks a bit pricey and leaves it vulnerable to any hiccup in China’s growth trajectory. I think I’ll sleep on this one.
The article Should I Buy InterContinental Hotels Group? originally appeared on Fool.com and is written by Harvey Jones.
Harvey Jones doesn’t own any shares mentioned in this article. The Motley Fool has no position in any of the stocks mentioned.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.