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Does Wall Street Truly Understand Valuation of Publicly Traded Lodging Stocks?

Temple University, seokilee{at}temple.edu

Arun Upneja

The Pennsylvania State University, aupneja{at}psu.edu

Lodging stock undervaluation has been a long-standing issue in the industry. The proponents of lodging stock undervaluation attribute the phenomenon to Wall Street's lack of understanding of the lodging business. The opponents dismiss this claim by stating that it is unlikely that Wall Street has extensive knowledge of all industries except lodging. Therefore, the main purpose of this study is to investigate whether lodging stocks are, in fact, undervalued. The results support the notion that lodging stocks are undervalued compared to nonlodging stocks during the sample period of the 1990s. The undervaluation phenomenon may create opportunity for existing and potential lodging industry investors to take advantage of investing in a substantially undervalued portfolio. To accomplish this main goal empirically, an equity valuation model is used.

Key Words: lodging • undervaluation • equity value • residual income model

Journal of Hospitality & Tourism Research, Vol. 31, No. 2, 168-181 (2007)
DOI: 10.1177/1096348006297288


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