Stock market crashes are a fact of life. Although this year’s crash was triggered by the coronavirus, over the last 30 years we’ve seen a market crash every decade or so.
The good news is that buying cheap shares during a slump can be a great way to lock in future profits. Today I want to look at a UK share I’m thinking about buying for when the market recovers.
The company that’s caught my eye is Whitbread (LSE: WTB), which owns the Premier Inn budget hotel chain. I’ve been a fan of this business for a while. In my experience as a customer, the firm’s product is good quality, consistent, and reasonably priced. I’m also attracted to the strength of the brand and its £3bn property portfolio — about 60% of hotels are owned freehold.
This year has obviously been difficult. Sales fell by 77% to just £250.8m during the six months to 27 August, and the group reported a £660.5m loss for the first half of the year. Whitbread’s share price has fallen by nearly 50% since the stock market crashed.
However, Whitbread boss Alison Brittain moved fast to protect the business at the start of the pandemic, raising £1bn in a rights issue and securing other lines of credit. As a result, the company had £936m of cash on hand at the end of August, plus undrawn debt facilities of £1,550m. I don’t see any short-term risk to Whitbread’s financial health.
Growing market share
With much of the UK now back under partial lockdown restrictions, I suspect Premier Inn’s trading is worsening again. But in a way, I don’t think it matters. Historically, market-leading companies often increase their share of the market during a stock market crash, because weaker rivals fail.
I think we’re already seeing evidence of that with Premier Inn. The company says that its sales growth outperformed the wider market by 4.3% in August and by 6% in September. Premier Inn now has a UK hotel market share of around 11%. I’m confident this business should recover strongly when pandemic conditions ease.
There’s also a second attraction, in my view. Premier Inn is rolling out its business in Germany, which has a much more fragmented hotel market than the UK. Whitbread has used the lockdown period to speed up this rollout and has increased its German estate from six to 21 hotels so far this year. I reckon this could be a big growth story over the next five to 10 years.
This could be one of my top stock market crash buys
Whitbread’s falling share price has halved this year. As I write, the stock is changing hands for about £21, down from nearly £42 at the start of the year.
This slump means that Whitbread shares are trading at around 11 times last year’s earnings. Although it could be a while until profits return to last year’s level, the current valuation looks cheap to me.
I’m tempted to buy Whitbread at current levels, as I believe the group has a strong future. I’ve added the stock to my short list of stocks for further research.
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Roland Head 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.