The Motley Fool

Why I’d pay up to £50 a share for this FTSE 100 growth stock

Shares of Premier Inn owner Whitbread  (LSE: WTB) are trading not far below their 52-week high of 4,965p. This FTSE 100 giant, which recently completed the £3.9bn sale of its Costa Coffee business to The Coca-Cola Company, has a market capitalisation of near to £9bn.

Meanwhile, the share price of easyHotel  (LSE: EZH), which issued a trading update this morning ahead of its AGM, is well down from a high of 128p last year. In fact, it’s close to its 52-week low of 85p, leaving it not far above the 80p price of its flotation back in 2014. Listed on the junior AIM market, its capitalisation currently stands at around £125m.

Despite the huge difference in their market-caps, and in the recent performance of their shares, I believe both companies have exciting growth prospects. And I’d be happy to buy a stake in them at today’s prices.

Premier investment

On the face of it, Whitbread’s shares don’t appear cheap. According to the company’s website, City analysts are forecasting a pre-tax profit of £444m for its current financial year (ending next month). After tax, I reckon this translates into a price-to-earnings (P/E) ratio of around 25.

Management has said it expects pre-tax profit to be flat for the year to February 2020. However, earnings per share should increase because the company has launched an “initial” share buyback programme of up to £500m, as part its plan to return “a significant majority” of the Costa sale proceeds to shareholders. This will bring the P/E down, although we don’t yet know by how far.

Be that as it may, it’s not the immediate outlook, but Whitbread’s longer-term prospects, that excites me. It’s in the early stages of expanding into the large German market. This should be a real driver of growth, if it can replicate the success of Premier Inn UK.

Not that the company’s finished expanding on home soil. Its core offering still has scope for growth, and it’s also set to roll out a super-budget brand, Zip. I’d be happy to try Zip’s small rooms (designed by an award-winning designer of first class aircraft cabins) at £19 a night. But I’d be willing to pay a bit more for Whitbread’s shares — up to £50.

Easy check-in

easyHotel is focused solely on the super-budget market. In today’s update, it reported revenue growth of 60% in the first quarter of its current financial year, which runs to September. Like-for-like revenue per available room in its owned hotels was up 11.2%.

Like Whitbread, the company is cautious on the near-term outlook in the UK, due to the impact of political and economic uncertainty on consumer confidence. It intends to sacrifice gross margin in order to continue driving revenue growth and brand recognition, with the opening of new owned and franchise hotels, both at home and abroad.

Despite the near-term headwinds, and Whitbread entering the super-budget sector, I continue to see easyHotel as an attractive long-term growth stock with multi-bagging potential. Institutional investors were happy to support a £50m placing at 110p a share last year, in order for the company to accelerate its development pipeline. I think checking in at today’s super-budget price of little more than 85p could prove a bargain for long-stay investors.

Capital Gains

In the meantime, one of our top investing analysts has put together a free report called "A Top Growth Share From The Motley Fool", featuring a mid-cap firm enjoying strong growth that looks set to continue. To find out its name and why we like it for free, click here now!

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.