Is Now The Time To Put InterContinental Hotels Group (LON:IHG) On Your Watchlist?

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It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital – so investors should be cautious that they’re not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like InterContinental Hotels Group (LON:IHG), which has not only revenues, but also profits. Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

See our latest analysis for InterContinental Hotels Group

InterContinental Hotels Group’s Improving Profits

In the last three years InterContinental Hotels Group’s earnings per share took off; so much so that it’s a bit disingenuous to use these figures to try and deduce long term estimates. As a result, we’ll zoom in on growth over the last year, instead. To the delight of shareholders, InterContinental Hotels Group’s EPS soared from US$2.37 to US$3.76, over the last year. That’s a fantastic gain of 59%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. EBIT margins for InterContinental Hotels Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 24% to US$3.4b. That’s a real positive.

The chart below shows how the company’s bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

LSE:IHG Earnings and Revenue History October 5th 2023

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of InterContinental Hotels Group’s forecast profits?

Are InterContinental Hotels Group Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a UK£10b company like InterContinental Hotels Group. But we do take comfort from the fact that they are investors in the company. As a matter of fact, their holding is valued at US$27m. That’s a lot of money, and no small incentive to work hard. Even though that’s only about 0.3% of the company, it’s enough money to indicate alignment between the leaders of the business and ordinary shareholders.

It’s good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. Our analysis has discovered that the median total compensation for the CEOs of companies like InterContinental Hotels Group, with market caps over US$8.0b, is about US$5.0m.

InterContinental Hotels Group’s CEO took home a total compensation package worth US$3.9m in the year leading up to December 2022. That seems pretty reasonable, especially given it’s below the median for similar sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it’s reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Should You Add InterContinental Hotels Group To Your Watchlist?

You can’t deny that InterContinental Hotels Group has grown its earnings per share at a very impressive rate. That’s attractive. If you need more convincing beyond that EPS growth rate, don’t forget about the reasonable remuneration and the high insider ownership. Everyone has their own preferences when it comes to investing but it definitely makes InterContinental Hotels Group look rather interesting indeed. We don’t want to rain on the parade too much, but we did also find 3 warning signs for InterContinental Hotels Group that you need to be mindful of.

There’s always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we’re helping make it simple.

Find out whether InterContinental Hotels Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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