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Choice Hotels Shares Plunged: What You Need to Know

By Tim Beyers - Updated Apr 6, 2017 at 10:06PM

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Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Choice Hotels (NYSE: CHH) fell 10% in intraday trading after a Wells Fargo analyst downgraded the stock to market perform from outperform.

So what: Wells cited a lack of near-term catalysts to support growth, reported. Maybe so, but the company's first-quarter results still beat estimates. Revenue improved 7% to $115.3 million, while adjusted earnings moved up a penny to $0.28 a share. Wall Street had been looking for $114.9 million and $0.25 a share, respectively, according to Yahoo! Finance data.

Now what: Whether Wells is right, one thing's clear: Choice Hotels is expensive compared with its growth prospects and industry norms. According to Yahoo! Finance, comparable sector stocks trade for 23.6 times expected earnings and grow profit at 15.4% annually over the next five years. Choice trades for 22 times forward earnings yet is expected to grow profits by just 7% annually. After seeing that combo, it's hard to blame investors for selling.

Interested in more info on Choice Hotels? Add it to your watchlist.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Choice Hotels International, Inc. Stock Quote
Choice Hotels International, Inc.
$145.78 (4.08%) $5.71

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