EP127: Old Narratives, New Setups
Stock Ideas From Investment Professionals
Welcome, subscribers!
This week’s issue features four new ideas sourced from professional investor letters. The common thread: businesses the market may be mispricing due to cyclical headwinds, legacy narratives, or recent transitions that obscure improving fundamentals.
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Keep reading for new ideas, including:
A beaten-down hotel franchisor
A restructured African wireless operator
An underappreciated AI infrastructure play
A specialty chemicals turnaround with significant operating leverage ahead.
Disclaimer: Nothing here constitutes professional and/or financial advice. You alone assume any risk with the use of any information contained herein. We may own positions in the securities listed. Please do your own due diligence.
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Let’s get to it.
Voss Capital discussed a new core position in Choice Hotels International (CHH). The team believes the asset-light hotel franchisor is trading at a distressed valuation after a sharp stock decline tied to cyclical headwinds in U.S. hotel demand. In their view, the market is overlooking the company’s strong cash generation, improving portfolio mix, and multiple potential catalysts that could drive a meaningful rerating.
New Core Long: Choice Hotels (CHH) | 5.3% Portfolio Weight
CHH is an asset-light, high-margin (60%+ EBITDA margin on revenue ex-pass-through costs) hotel franchisor trading at a distressed multiple due to cyclical top-line headwinds and KPI deterioration experienced in 2025, namely U.S. RevPAR declines and lack of U.S. room growth. The market has severely punished the stock—down from $154 in early 2025 to $106 today—now pricing in structural decline fears. However, the business is still growing earnings, is highly cash-generative, and may have the ability to unlock a significant amount of cash on the balance sheet to buy back shares at these historically low levels.
The consensus narrative that CHH is a struggling, low-end domestic motel brand has over-stayed its welcome. CHH is actively shifting its portfolio of 7,575 hotels toward higher revenue, stickier segments:
• Extended Stay: Now comprises 9% of total rooms and 11.5% of U.S. rooms (57,000 rooms) and growing, with room count +12% year-over-year and comprising 40% of CHH’s active pipeline. Extended Stay hotels benefit from longer average stays, more stable earnings for franchisees, and generate a juicy 6% royalty rate for CHH. This segment has been the portfolio bright spot, posting +3.1% ADR and flat RevPAR in 2025 vs an overall decline in RevPAR across the hotel industry. CHH currently accounts for 40% of all economy and mid-scale extended stay rooms under construction in the U.S.
• Small & Medium Business (SMB) & Demographic Tailwinds: CHH is highly leveraged to the “golden generation” and the blue-collar/SMB workforce. 30% of guests are over 60, a demographic projected to increase spending by 70% by 2030. SMB business for CHH was up 13% in 2025, driven by demand from the construction and utility sectors.
• International Inflection: International is still relatively small at 24% of CHH’s rooms but scaling rapidly and is the company’s highest growth opportunity. More profitable Direct franchising is now 41% of the international portfolio (up from 19% just three years ago). International EBITDA is targeted to double to $50 million by 2027, driven by recent expansions in Canada, EMEA, and LATAM. EBITDA per international unit has more than tripled from 2022 to 2025 due to more direct franchising, a higher average Revenue Per Available Room (RevPAR), and a rising average royalty rate.
• Overall, CHH is shifting its portfolio mix to longer average stays, higher margin direct franchising agreements internationally and higher rooms in general with 97% of the rooms in the current pipeline being non-economy rooms.
Notably, the company has been using its own balance sheet to fund the development of two new hotel brands, Cambria and Everhome Suites. As the ground-up development of these hotels is completed and they’re subsequently secured with 30-year franchise agreements and then sold, not only will CHH return to a purely asset-light model and slash capital outlays, but it will likely free up over $700 million of capital tied up on the balance sheet, the equivalent to 14% of the current market cap.
This large cash unlock could come at a very opportunistic moment for the Company to meaningfully buy back shares. CHH is currently trading around the bottom 2.5% of its historical valuation range over the past ten years at 10.7x EBITDA. To further put this in perspective, since 2006, CHH has only traded below 10x EBITDA for 48 weeks, almost all of which occurred during the Great Financial Crisis in 2008 - 2009.
From 2016 through 2023 (outside of earnings drops for the entire hotel comp set around COVID), CHH consistently traded at a premium to its peer group. This began to break down in 2024 and fully decoupled in 2025 as domestic RevPAR softened and became the market’s myopic focus as investors have sought ways to express bearish views on low-end consumers. We feel that CHH now guiding to a return to net room growth in the US, along with continued strong growth internationally and steadily growing earnings heavily dents the bear case.
We view the current setup as highly attractive. CHH is trading at a historic discount to both its own historical averages and its peer group. Combined with a massive 26% short interest, 40% insider ownership, and a recent change-in-control compensation amendment that is suggestive of M&A preparation, CHH offers multiple paths to a rapid rerating.
If the stock reverts to its 20-year median valuation of 14x forward EBITDA (which would still be a 3-6x EBITDA discount to Hyatt, Hilton, and Marriott), the stock has ~50% upside.
Three more stock pitches below for paid subscribers, including a deep dive on a sub-$200 million specialty chemicals turnaround with a new CEO, a net-cash balance sheet, and significant operating leverage ahead.
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