Down 21% since February, this winning FTSE 100 stock now looks interesting

The high-flying FTSE 100 has come off the boil in the past couple of weeks as the risk of a global trade war rises. One Footsie stock that has fallen more than most is InterContinental Hotels Group (LSE: IHG). Now at 8,600p, it’s down 21% in just over a month.

Taking a longer-term view however, IHG stock has been a big winner. It’s still up 160% over the past five years, not including dividends. In my eyes though, the firm remains an attractive investment proposition, making this a potential dip-buying opportunity for my portfolio.

Capital-light model

IHG operates more than 6,600 hotels worldwide across 20 brands, covering the luxury, premium, and midscale segments. These include InterContinental, Regent, Kimpton, Crowne Plaza, and Holiday Inn. 

The firm primarily follows an asset-light franchise and management model, meaning it doesn’t own most of its locations but earns money through fees paid by hotel owners. This is enabling it to expand faster around the world.  

Unlike US rivals Marriott and Hilton, which have a stronger emphasis on luxury, IHG has established a strong presence in the midscale segment. This strategy allows it to cater to a wide range of travellers.

Solid progress

In mid-February, the company released its 2024 results. It reported $2.3bn in revenue from its core franchise and management business, up 7% year on year. Core operating profit jumped 10% to $1.12bn.

IHG added 371 new hotels (59,100 rooms) in 2024, a 23% increase, with a global pipeline of 2,210 hotels (325,000 rooms).

Revenue per available room (RevPAR) increased 3% globally, driven by 6.6% growth in EMEAA (Europe, Middle East, Africa and Asia) and 2.5% in the Americas. However, Greater China fell 4.8% and remains a weak market. Higher RevPAR means hotels are charging more per night and/or filling more rooms. The 3% figure was higher than what analysts were expecting (2.6%).

Meanwhile, the firm hiked the dividend by 10% and announced a new $900m share buyback programme. The forward-looking dividend yield here though is a modest 1.7%.

Why’s the stock down?

Now for the not-so-good bits. Net debt increased to $2.78bn, largely due to shareholder returns. And there were higher interest payments, with adjusted interest expense rising from $131m to $165m.

In 2025, IHG says its adjusted interest expense will be between $190m and $205m, surpassing analysts’ estimates of $174m. This issue led some analysts to downgrade the stock, especially as it was trading at a premium valuation above 10,000p. 

Another concern here is the growing possibility of a recession in the US, IHG’s largest market. This could thwart growth and impact earnings.

Foolish perspective

Looking to the long term though, I think there’s a lot to like here. Many of the company’s brands are very established and it has an attractive business model that produces high margins and recurring revenue.

Meanwhile, leading global hotel brands are expected to continue a long-term trend of taking market share. The valuation also seems reasonable. Right now, the stock is trading at around 22 times this year’s forecast earnings.

Finally, IHG plans to expand in numerous high-growth markets over the coming years, including India and the Middle East. I think the stock will recover and do well long term, which is why I’m considering buying it.