Shares of Hilton Worldwide (HLT -0.08%) are, once again, being traded publicly for the first time. They opened Thursday morning at an initial public offering price of $20 per share. The company raised $2.35 billion, and it will use $1.25 billion of that to pay off a term loan. The publicly owned asset management firm The Blackstone Group (BX) still owns about 76% of Hilton, and plans to retain that asset for the time being.
As the shares came to a close on their first day of trading, they had risen 7.5%, to close at $21.50 per share. At today's closing price, the company is now valued around $20 billion, much larger than that of Marriott (MAR -0.41%) at $13.78 billion, or Starwood (NYSE: HOT) at $14.03 billion. But when all things are considered, Hilton is not that much larger than Marriott in terms of hotels and rooms. Hilton currently has just more than 672,000 rooms at 4,080 locations, while Marriott operates 670,000 rooms at 3,883 properties, and Starwood operates 335,400 rooms at 1,134 locations at the end of its last fiscal year. As for Hyatt Hotels (H -0.15%), the company is far behind in all categories with only 535 hotels, and a market value of $7.34 billion.
But what is surprising about these numbers is that, when we consider the hotel count and how that relates to the market caps of each company, Hyatt comes out ahead. The idea is to take each single hotel, and decide its worth for each company. So Hyatt's market cap of $7.34 billion is divided by the 535 hotels it operates, giving us an individual hotel value of $13.71 million. Hilton's per hotel value would be $4.9 million, Marriott's comes in at $3.54 million, and Starwood's is at $12.37 million.
We could say that those numbers mean Hyatt is overvalued, or that Hilton and Marriott are undervalued, but the problem is that all hotels are not created equal. Small limited-service properties just aren't going to be worth as much as a 1,000 room full-service hotel with three restaurants. But what's interesting in those numbers is that Hilton is valued that much higher than Marriott, considering the two have the most similar property mix out of any of the large hotel chains. Based on just the hotel and market cap, one could argue that Hilton is already overvalued.
Regardless of whether you believe Hilton is a good buy today or overvalued, investors should hold off on buying shares for at least some time. First, the Blackstone Group still holds 76% of the company and only about 11% of the outstanding shares are available on the open market. This means that, eventually, the other 89% will hit the market, and if too many are sold at the same time, the price could fall. Additionally, with only a small number of shares in float, the simple concept of supply and demand may take over and push the stock higher despite what the valuation looks like. Now, you could certainly make the argument that The Blackstone Group would have sold in the IPO today if they didn't believe the company was still a good investment. And while that is true, my second reason may convince some of you not to make a mistake.
Secondly, here at The Motley Fool, we don't believe investors should be buying on the IPO day, or for a few months afterwards. Let the company report earnings a few times before you pull the trigger. And I would say that this is even more important with a company like Hilton because it has so much competition, so individual investors have a lot to compare the numbers to. For example, when Facebook went public, there was very little an investor could compare the company to -- maybe Google ad revenue -- but even that was a stretch. With Hilton, you have RevPar, daily room rates, occupancy rates, food & beverage revenue per square foot -- I could go on and on; but the point is that a number of different metrics are all going to be reported by the big chains mentioned above. So before you by Hilton because you like staying in their hotels more than Marriott's, compare how the company is performing against the competition.
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