The stock market crash hit the hospitality industry hard. Along with airlines and tourism providers, hotels, restaurants, and pubs stocks were dumped by investors at speed. Stocks like the Intercontinental Hotels Group (LSE: IHG) are among them. But the tide has turned. I’d consider investing £1,000 today in IHG today.
If I had bought IHG at its lowest price during the stock market crash, an investment of £1,000 would have a value of a little over £1,500 by now. The trouble is, it’s not always easy to time the stock markets. The good news is that we don’t have to. If I had invested £1,000 anytime in March, on average I’d be sitting on at least 15% capital growth anyway.
What’s next for the IHG share price
While this gives me confidence in the short term, can IHG be a good investment over the long term as well? Its share price chart over the years certainly makes me optimistic. But the hospitality industry has been impacted like never before in the recent past. There hasn’t been a near shutdown in activity before, impacting the top-line hard. This has set back companies’ financials and potentially also altered their plans.
Further, the increase in IHG’s share price so far is driven by a relief rally, and not strong performance. Ultimately, how the stock price will behave in the future will depend on the actual pickup in its business. With social distancing measures still in place and business activity back only partially, it’s possible that hospitality will be pick up quite slowly.
Bracing for another stock market crash
Additionally, hospitality is a cyclical business. As a result, it’s impacted by the recession, and there’s one underway right now. This means, business travel is likely to remain muted and people are less likely to go on holiday too. If the recession worsens, stocks like IHG will suffer more. The real state of the economy will become clearer in the next months as lockdowns ease further and government support to business reduces. There is increasing speculation of another stock market crash too.
With this as the backdrop, it’s hard to tell what’s going to be next for IHG. What we do know is this. The group, whose biggest brand is Holiday Inn Express, can see some easing up in activity as lockdowns end. I’m less sure if business can be sustained and grown thereon. That IHG is a big company, with multiple interests across geographies, gives some confidence. That it has been a financially healthy one is also another positive.
The upshot
On balance, there’s still risk to investing in IHG. In the next few months or so, however, the stock price may dip, especially if there’s another stock market crash. And I should be prepared for that, like any good long-term investor. If I’m risk averse, I’d consider safer stocks.