According to a September 8 report by Renaissance Capital, a whopping 67 companies have filed S-1 registration statements with the SEC and are looking to go public, up from 29 in March. Renaissance, which specializes in IPO research, suggests most of the current wave is private equity firms looking for some liquidity from their investment portfolio, or mature businesses looking to take advantage of the current aversion to risk. One such company is Chicago-based Hyatt Hotels, filing a registration statement August 5. It appears that the Pritzker family, which owns 85% of the luxury hotel chain, wants to shake loose some cash for its feuding family members. While this may be a great exit strategy for Pritzker progeny, it shouldn't be at the investor's expense. In my opinion, if you buy shares in this IPO, you're just plain nuts. (For an overview of the IPO process, see our IPO Basics Tutorial.)
IN PICTURES: Digging Out Of Debt In 8 Steps

Return on Cash - Top Hotel Chains

Company Cash From Operations Adjusted Revenues CFO as a % of Revenue
Hyatt $287M $2.5B 11.5%
Marriott (NYSE:MAR) $641M $4.0B 16.0%
Starwood (NYSE:HOT) $646M $3.9B 16.6%
Wyndham Worldwide (NYSE:WYN) $109M $4.3B 2.5%
Choice Hotels (NYSE:CHH) $104M $305M 34.1%
*Adjusted Revenues excludes revenue from expense reimbursements

Hotel Industry Slumping
Let's forget for a minute that the travel industry isn't hemorrhaging cash and that business is just fine. Looking at the table above, you'll see that several of Hyatt's competitors are doing a much better job of generating cash from revenues. Sure, Hyatt owns some nice properties, like the Park Hyatt's in both Chicago and Toronto, but so too does Marriott and Starwood, operating the Ritz-Carlton and St. Regis respectively. It's a competitive business that the Pritzkers have been a part of since 1957. Nostalgia's great for the collectibles market but it means little in the hotel business. The Hyatt IPO might seem like an interesting investment but if you can get a better return elsewhere - which you can - then you should do that.

Affordable Is the New Trend
Americans have become more frugal because of this recession. Examples abound where consumers are trading down, whether its toilet paper or hotel rooms. Conspicuous consumption has gone away and probably won't come back for some time. This means lower-priced hotel brands like those offered by Choice Hotels will become a real alternative to Hyatt and other luxury chains. For instance, in the second quarter, Choice's average daily rate across its various brands was $70.53. This compares to $116 for a night's stay at a Hyatt. It might not seem like a lot to the rich, but for the average working stiff, paying 60% more for a place to sleep while visiting relatives makes little economic sense. Despite this obvious advantage, Choice's profits are down, though not nearly as much as Hyatt, which lost $36 million in the first six months of the year compared to a $41.8 million profit for Choice. Perhaps that's why Citi Investment Research analyst Michael Bilerman initiated a "buy" rating September 16 for the economy chain. Bilerman believes hotel chains should go through a sustained period of earnings growth once a rising demand meets a slowing supply and that, in turn, should help stock prices. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)

Bottom Line
While it's very tempting to take what the Citi analyst has said about hotel industry revitalization and apply that rationale to Hyatt. Don't. There are three alternatives (Choice, Marriott and Starwood) available without the hype of an IPO obscuring the true value of its stock price. You'd be nuts to choose Hyatt over any of them. However, if you must get your Pritzker hit, buy Berkshire-Hathaway (NYSE:BRK.B) stock. It owns 60% of Marmon Group, the Pritzker's industrial conglomerate.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  2. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  3. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  4. Investing News

    Is the White House too Optimistic on the Economy?

    Are the White House's economic growth projections for 2016 and 2017 realistic or too optimistic?
  5. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  6. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  7. Economics

    Can the Market Predict a Recession?

    Is a bear market an indication that a recession is on the horizon?
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
RELATED FAQS
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do interest rates increase during a recession?

    Interest rates rarely increase during a recession. Actually, the opposite tends to happen; as the economy contracts, interest ... Read Full Answer >>
  3. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center