UK based Hostelworld Group (HSW.L) operates a hostel-focused online booking platform, facilitating transactions between customers and suppliers of hostels and other forms of budget accommodation. While the Company’s business is focused on the hostels and budget accommodation sector of online travel, it also owns and operates various customer websites and applications through its brand Hostelworld, along with supporting brands Hostelbookers and Hostels.com. The Company offers its services across a hostel database of over 12,600 hostels and approximately 21,000 other forms of budget accommodation available. Travelers can book accommodation across approximately 33,000 properties in various cities of approximately 170 countries.
On January 25th 2017, Hostelworld issued a pre-close trading update, and said that results for the full year to Dec 31st 2016 (due March 28th 2017) are anticipated to be in line with expectations. The Company delivered 21% growth in bookings for its flagship Hostelworld brand in H2 2016, resulting in 18% growth for the year as a whole. Across all brands, overall bookings growth increasing 2% during H2 2016, leading to a 1% decline for the year as a whole. The Company also reported good progress in its mobile business, with mobile (including tablet) now representing over 49% of Hostelworld brand bookings for the year (2015: 41%). The Company continued to generate excellent free cash flow, which contributed to a strong balance sheet at the period end, and as a result expects to announce the first full year final dividend in March, in accordance with the policy stated at the time of the Group’s IPO.
Hostelworld was flagged up as a growth prospect across VectorVest metrics in June 2016, when the stock fell after a fall in Q2 bookings. Since then, Hostelworld has continued to deliver a steady recovery from 126p, but even at the current 228p, it continues to trade well below the VectorVest valuation of 394p. Indeed the VST (VST is the master indicator for ranking every stock in the VectorVest database) rates HSW.L with a VST rating of 1.26, which is very good on a scale of 0.00 to 2.00. VST is computed from the square root of a weighted sum of the squares of RV, RS, and RT. Stocks with the highest VST ratings offer the best combinations of Value, Safety and Timing.
However the safety of the earnings stream on VectorVest (RS) is showing a value of 0.86. On a scale between 0 and 2, this is poor. The investment should be considered only by those that have proven experience in risk management and position sizing.
The chart of HSW.L is shown above with the price in candlestick format. The VectorVest valuation is shown by the green line study, while earnings per share (EPS) is shown in the window below the price as a blue line study. Over the past few days, the share has broken above a 13 week high and is also on a VectorVest buy recomendation. The share has also broken and kissed a trendline defining a 5 wave continuation pattern and looks highly probable to break above the last significant at 243 soon.
Summary: As promised, at the time of the IPO and despite the dip in the share price last year, Hostelworld is on schedule to make a maiden dividend payment with its full year results at the end of March. It does this on the back of strong growth in revenues and bookings and excellent free cash flow, and with VectorVest flagging an excellent forecasted GRT (Earnings Growth Rate) of 33.00%, the prospects appear exceptionally good. Aggressive traders should consider the share.
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March 13th 2017
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