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Why La Quinta Holdings Inc's Shares Plunged 12% Today

By Travis Hoium - Feb 25, 2016 at 2:00PM

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Could low oil prices be hurting this hotel chain?

Image source: La Quinta.

What: Shares of hotel company La Quinta Holdings Inc (NYSE: LQ) fell as much as 12% Thursday after reporting earnings.

So what: Revenue was up slightly to $228.9 million and adjusted net income fell 6% to $11.3 million, or $0.09 per share. Revenue fell slightly short of the $231.9 million analysts expected, but earnings beat expectations by $0.03. 

What may have hurt shares more Thursday was a downgrade to a hold rating from analysts at Stifel. Stifel thinks the company's exposure to areas like Texas, hit hard by the drop in oil prices, could lead to weak results in 2016. 

Now what: Management is trying to diversify away from its main states of Texas, Florida, and California, so it's aware of the geographical reliance. During 2015, 60% of new hotel pipeline was outside of those states.

While the concern about oil rich locations is valid, I don't think it's a reason to be scared away from the stock. Weakness in energy can be cyclical and when travelers return the company should be well positioned to take advantage.

Travis Hoium 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.

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