The Mantra Group Ltd (ASX: MTR) share price has staged a modest rebound from 52-week lows posted in January, as the stock tracks the S&P/ASX 200 Index's (ASX: XJO) broad-based rally.
Nevertheless, with Mantra's shares currently trading at $3.07 (based on Wednesday's close), I believe long-term investors should look to back this hotel giant ahead of its scheduled results release on Friday.
Here's why.
Company fundamentals
In 2016, Mantra reported earnings of 16.2 cents per share, reflecting growth of 13.8% on prior year figures. The company posted 23% growth to underlying earnings enabling underlying net profit after tax to swell to $43.8 million.
Whilst an enviable set of numbers for most, investors are seemingly unpleased by Mantra's performance. Mantra's shares are down 30% over the last 12 months as investors demand more growth from Australia's second-largest accommodation provider as headline earnings per share slows.
With a trailing price-earnings of 19.0x (on an underlying basis), Mantra currently trades at a premium to competitor Event Hospitality and Entertainment Ltd (ASX: EVT).
Nonetheless, Mantra's growth prospects are why I believe it can outperform the broader market over the long term.
Growth outlook
Mantra operates 127 properties under the BreakFree, Mantra and Peppers brands, meaning it is highly leveraged to inbound tourism.
Total tourist numbers to Australia's largest capital city have been on the rise for years as investors in Sydney Airport Holdings Ltd (ASX: SYD) know. The same appears to be the case for the rest of Australia.
In the airport operator's traffic performance report for December 2016, total passenger numbers for the year grew 5.6% on the prior corresponding period, as the fastest growth rate of international passengers in 12 years boosted total passenger numbers.
Whilst Sydney Airport's reported growth to passenger numbers does not directly benefit Mantra, the fact is that increased visitors to Australia means more tourists will need more places to stay.
Accordingly, whilst I'm in no way suggesting that Mantra is the go to hotel provider in Australia, I do believe its portfolio range of budget to luxury brands is best placed to accommodate everyone's budget (pun intended).
Therefore, I'd expect earnings to continue growing over the long-term.
New competitors
Of course, the biggest threat to Mantra's business is the rise of the sharing economy. With Airbnb becoming fast embraced around the world, Mantra (and all other hotel providers) need to adapt to ensure customers choose its hotels and resorts over your next door neighbour's holiday house.
Although this means the business is not without its risks, I do believe Mantra's geographic diversification (in places like Bali where Airbnb is not as popular) and multiple price point offerings provides more downside protection than the likes of luxury accommodation provider Crown Resorts Ltd (ASX: CWN). As such, I rate it a buy at current prices.
Foolish takeaway
With Mantra's management forecasting 2017 earnings (EBITDA) growth of 12% – 20% on 2016 numbers, earnings per share should naturally increase too. Given the company reports on Friday, I believe investors who trust management's ability to deliver on promises could stand to benefit by buying the stock before results.
