Whitbread (LSE: WTB) is one FTSE 100 stock on a great run recently. Let’s take a look at whether it could be a good time to buy some shares or not.
Premier Inn owner
Founded in 1742 as a regional brewer, it’s now one of the biggest hospitality firms in the UK, running hotels, pubs, and other leisure businesses. Its best-known brand is hotel business Premier Inn.
As I write, Whitbread shares are trading for 3,447p, which is a 48% increase over a 12-month period. They were trading for 2,318p at this time last year. For context, the FTSE 100 index is up only 9% over the same period.
The investment case
Whitbread’s market position is the first characteristic that stands out to me. As one of the market leaders in the economy and mid-market segment, it is extremely popular. I’ve often used a Premier Inn hotel when travelling throughout the UK for business and pleasure. It’s cost-effective, no frills, and does what it says on the tin.
In addition to this, Whitbread is looking to grow its presence here in the UK and more tellingly for me, internationally. It is looking to expand into Germany, which management believes could help propel the business to new heights. Of course there is no guarantee this will be a smooth operation, or that it could garner similar domination like here in the UK, but the signs so far are good. It has 56 hotels with 10,000 rooms available, according to latest figures provided in June.
Finally, Whitbread has a decent balance sheet with plenty of cash. This will help boost growth and provide investor returns. A dividend yield of 2.5% is below the FTSE 100 average of 3.9%, but this could grow in line with the business. However, I understand that dividends are never guaranteed.
Moving on to the bear case, Whitbread’s share price rise means the shares look a tad pricey on a price-to-earnings ratio of 23. I looked at this valuation two ways. Firstly, I could buy a dominant business at a fair price. Conversely, there’s a risk that any growth initiatives not working out or poor performance could send the shares tumbling.
Another factor to take into account is the current economic volatility and cost-of-living crisis. Whitbread may struggle on the leisure front as people have less cash to spend on getaways. This could impact performance and potentially payouts, at least in the short term.
A FTSE 100 stock to consider buying
Overall, I think there’s lots to like about Whitbread shares. This includes a dominant market position, a passive income opportunity, and expansive growth plans, which could boost the shares further.
Buying Whitbread shares when they’re soaring comes with risks but as Warren Buffett said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
Investors considering the shares could find Whitbread a good addition to any portfolio, in my opinion. As with any FTSE 100 stock, there are risks to be wary of. A half-year report due later this month should help shed more light on investment viability too.
