London FTSE 100

Is Whitbread share price a buy after plummeting by 44% this year?

Whitbread share price is down by more than 4%, becoming the worst-performing stock in the FTSE 100. Other laggards in the index are Compass Group, 3i Group, Informa, Smith, and HSBC Holdings. Like the DAX index, the FTSE 100 is down by almost 1%. Whitbread’s stock is dropping after reporting weak Q1 update. It is trading at 2,339p.

Whitbread share price drops

Whitbread, the hospitality group that owns Premier Inn, reported weak Q1 corporate earnings today. The company said that its sales declined by 79% in the quarter as the coronavirus pandemic affected bookings.

The company said that it has reopened all its 270 hotels and 24 restaurants in the United Kingdom. But the management warned of the difficulty of forecasting demand. Similarly, its hotels in Germany are open for business.

In the first quarter, Whitbread’s accommodation sales fell by 79.4% in the quarter while food and beverage declined by 80.5%. In the UK and international, accommodation declined by 79.0% whole food and beverage fell by 80.1%. In a statement, the management said that its £1 billion rights issue will gelp it maintain its competitive advantage. The CEO said:

“We are very pleased to have commenced the reopening of our hotel and restaurant estates, which are now able to welcome all business and leisure guests. In the UK we currently have over 270 hotels open and expect the majority of the remainder of the estate to be open by the end of July.”

So, is Whitbread stock a buy?

The hotel industry has been hurt significantly by the pandemic with most of them staying out of business. They have been paying rent nonetheless. As a result, the Intercontinental Hotels and Whitbread share prices have dropped by 24% and 44% this year. And Whitbread stock is trading close to the lowest level since March 2013.

Whitbread vs Intercontinental
Whitbread stock price vs Intercontinental price

Therefore, with Whitbread share price at a multi-year low, does it make it a buy? Let’s look at the numbers. First, at the current price, the firm is valued at more than £4.73 billion. It has a PE ratio of about 14.65.

The company generated more than £2 billion in revenue in 2019 and an EBITDA of £280 million. The company has raised funds and withdrawn its dividend. Also, it will possibly make a loss this year.

Still, I believe that Whitbread stock price is a buy for two reasons. First, I expect that the company will bounce back as the pandemic eases. To be clear, since the disease will be here for a while, I expect the stock to lag slightly. Still, the company will recover as people start traveling. Indeed, in its statement today, the company said that it has seen some growth in its locations. Second, I believe that the drop of Whitbread stock price has made the company a bit undervalued.

Whitbread share price technical forecast

Whitbread stock price is trading at 2,338p. On the daily chart, the price is below the 50-day and 100-day exponential moving averages. Specifically, it has found some strong resistance at the 50-day EMA. It is also between the 23.6% and 38.2% Fibonacci retracement level.

Therefore, in the short term, I expect the stock to move lower as bears attempt to test the next support at 2,000p. However, a move above 2,638 will invalidate this prediction. This price is along the 38.2% retracement and is along the 100-day EMA.

In the long-term, I expect that Whitbread share price will move higher as bulls attempt to move above 4,000p.

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Whitbread stock price forecast

Whitbread share price

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