Should Investors Pay Attention to the La Quinta IPO?

Lodging is a great space considering the rising values of real estate, occupancy rates, and franchise business models. Should this week's IPO be a part of your portfolio?

Apr 8, 2014 at 3:02PM

IPOs are the hottest they've been in several years, and this week marks another round of businesses stepping out onto the public platform. As many Fools know well, buying into that hyped-up initial offering can often make for quick losses, but there are exceptions to every rule. One IPO of interest this week is in the consistently improving lodging space. With juggernauts such as Marriott International and Hilton posting better and better financials every quarter, the industry is a hot one. This chain was public as recently as 2006, and after a going-private transaction, it's ready to come back. Is La Quinta an IPO worth watching?

Rinse and repeat
The owner of La Quinta is private equity giant Blackstone (NYSE:BX), and the former's IPO this week will mark the third lodging business that Blackstone has taken public in just six months (Hilton and Extended Stay being the others). This doesn't mean Blackstone is trying to leave the lodging industry at warp speed, but rather that its restructuring efforts are paying off and allowing the company to make big money. Plus, industry tailwinds are as strong as they've been in some time.

Though all three hotel chains have their respective demographics, the strategy used for each was quite similar: shifting from real-estate-oriented businesses to franchised ones. Investors should feel encouraged immediately, as the franchise model is simply more favorable (though less income-generating for investors): The company has less in the way of upfront costs and payroll expenses, and instead leverages its brand name and collects royalties. All of the other hotel chains mentioned above lean toward the model as well, especially the ones Blackstone brought public.

Looking back is no guarantee of what's ahead, but the model is working in addition to strong industry trends -- mainly higher occupancy levels and room rates.

Is it a good deal?
While the operating model is prime for investment, the terms of the IPO are not quite as friendly. At the top of the offering range, La Quinta shares would sell for $21 per share, implying a valuation of $2.57 billion. Compared to their most recent year's earnings, that's a trailing P/E of more than 50 times. Hilton, which priced at the midrange of the prospectus, has stayed nearly flat since its December debut at a trailing P/E of 47 times. Industry giant Marriott, which has booked a 50% gain in two years, trades at a trailing P/E of roughly 28 times.

La Quinta has the elements to be a great investment, but it's priced too high. Wait for this one to simmer down a bit, and then take another look at the compelling story.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Michael Lewis has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information