Best stocks to buy now: could this stock be a shrewd recovery play?

On my best stocks to buy now list, I have a section for potential recovery plays. One stock in that section is Whitbread (LSE:WTB), the UK’s largest hotel operator. 

Recovery required

Whitbread is a UK-based hotel and restaurant firm. Its standout brands include Premier Inn, Brewers Fayre, and Beefeater. Of course, the hospitality industry has been devastated by the Covid-19 pandemic and ensuing lockdowns.

Whitbread itself experienced a terrible 2020. The share price lost close to 22% of its value. In addition, the company reported a 77% decline in revenue as well as a net loss of £153.7m.

Despite Whitbread’s share price having a less than stellar 2020, the last 12 months have seen an increase of over 20%. This is due in part to the restrictions easing in the summer and some positive interim results. Unfortunately this may have been a false dawn, as the country went into another lockdown in the winter. The fact that venues are reopening and restrictions are easing at the moment, is why I’ve marked Whitbread as a possible good recovery option on my best stocks to buy now list.

Recent performance & positives

Whitbread released its annual financial report earlier this month. As expected, it did not make for great reading. Revenue and profit were down substantially compared to last year. In addition, cash flow was also down. Despite these headline issues, I believe there were some positives. It reported that it increased its market share by 11% and reduced overall net debt through a rights issue worth £1bn.

I think Whitbread possesses the necessary tools, financials, and footprint to be a good recovery option. A report from PriceWaterhouseCoopers (PwC) estimated that the UK hotel occupancy rate for 2021 will be approximately 55%. Pre-pandemic levels of occupancy won’t return until 2023. In regards to Premier Inn, its average occupancy rate is 50% but its more popular locations near seaside resorts and tourist hot spots boasts a rate closer to 80%. Furthermore, new operations recently established in Germany saw a hike in sales by nearly 32%.

Best stocks to buy now have risks

The main risk Whitbread’s recovery faces is that of the pandemic becoming an issue once more. Further variants of Covid-19 could potentially delay easing of restrictions and damage any recovery.

In addition to the pandemic, Whitbread’s revenue derives from leisure and business travel. With businesses changing ways of working towards remote meetings, hotel stays from corporate avenues may decrease thus affecting Whitbread’s bottom line.

Overall I class Whitbread as a good recovery option on my best stocks to buy now list. The road to recovery is long, however. As a Foolish investor, I invest for the long term so I am not expecting to see a hike in performance and share price in the short term. Whitbread has new overseas operations that are performing well. Last year, the company completed a rights issue that raised £1bn. This makes me believe the worst could be over from a financial point of view too. 

I believe there are better times ahead for Whitbread. I am intrigued by it as a recovery play on my best stocks to buy now list.