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Hostelworld (LSE: HSW) is a small-cap UK inventory that suffered through the pandemic 5 years in the past. As international journey got here to a standstill, the hostel-booking platform’s income fell off a cliff, driving the agency into the crimson.
Nevertheless, with these darkish Covid days fortunately within the rear-view mirror, the share value has been steadily regaining misplaced floor. It’s gone from 77p again then to 136p, representing a achieve of roughly 79%.
But Metropolis brokers see additional potential features forward, and have a consensus value goal of 192p. That’s 40% greater than the present degree, although there’s no assure it’ll attain that value throughout the subsequent 12 months.
Apparently although, all seven analysts masking this small-cap inventory are very bullish, ranking it as a Sturdy Purchase.
What do they see in Hostelworld? Let’s take a look at some particulars.
Area of interest market
For these unfamiliar, Hostelworld is principally the Airbnb of hostels. It acts as a market, taking fee when travellers e book lodging through its web site or app.
The corporate has hostel companions in over 180 international locations, and youthful travellers make up nearly all of bookings. In 2019, Hostelworld generated €80.7m in income and a internet revenue of €8.4m. Then it endured three years of losses earlier than returning to profitability in 2023 as international journey rebounded after the pandemic.
In 2025, it’s anticipated to report €97.5m in income and a internet revenue of €13.9m. So it’s managed to climate the Covid storm, and is rising as soon as once more.
Progress plan
Constructing on this momentum, administration just lately set out a development plan. The goal is for low double-digit income development in 2026 and 2027, with an adjusted EBITDA margin above 20%, and adjusted free money stream conversion of about 70%.
The corporate has a robust stability sheet, with no debt, and an €8m internet money place on the finish of 2024. The dividend has been reinstated, with a progressive coverage of 20%-40% of adjusted post-tax revenue, beginning within the second half of this 12 months.
It has additionally simply commenced a £5m share buyback programme.
Social community
One space the agency is seeing success in is its social community. This permits members to message, join, and meet up with like-minded travellers.
Launched in Q2 of 2022, the community had 2.6m members by Q1 2025. These social members are reserving 2.2 instances greater than non-members over the primary 91 days after signing up. So there may be proof of robust community results rising right here.
Hostelworld can even begin together with extra price range motels and different lodging choices on its platform. Whereas that may spur development, it additionally takes it additional into competitors with Airbnb, Reserving.com, and others.
Additionally, international journey demand might all the time be impacted by one other pandemic or some type of international battle. So these are dangers to remember.
Respectable valuation
That stated, I just like the social community angle, because it’s more likely to maintain customers loyal to the platform. I see lots of monetisation potential.
Extra repeat bookings must also cut back advertising spend, which has already fallen from 58% as a proportion of income in 2022 to 46%.
Lastly, the inventory is buying and selling at simply 11 instances subsequent 12 months’s forecast earnings. Weighing issues up, I feel Hostelworld is value contemplating for buyers in search of an affordable small-cap inventory.
