Hostelworld Group (LSE:HSW) is a UK stock with a mission to “help travellers find people to hang out with”. As its name suggests, it specialises in selling hostel accommodation in over 180 countries.

The stock first came to my attention on 19 June. That was the day on which it announced a £5m share buyback programme. The group’s share price closed that day 23.5% higher at 147p.

A different story

But yesterday (10 July), the shares tanked 8% after the group released a disappointing trading update for the six months to 30 June 2025. Growth appears to have stalled with both net revenue (€46.7m) and net bookings (3.7m) unchanged from the same period in 2024.

After the pullback, the group’s shares now change hands for around 128p. This is approximately 17% lower than their 52-week high.

Cheap and cheerful

As you would expect from a company operating in a price-conscious market, Hostelworld’s a high-volume, low-margin business.

An indicator of how cheap its hostel accommodation can be is the group’s net average booking value (ABV). This fell by 1% during the first half of the year to €13.40. According to its website, during the first week of August, it’s possible to get a bed close to the centre of Paris for €23 a night.

Not surprisingly, the business was badly affected by the pandemic. But it’s enjoying better times now. It has ambitions to grow through acquisition. The group’s also looking to expand further in Latin America and Asia, popular destinations for budget-conscious travellers.

During the second half of the year, it hopes to resume its dividend. The intention is to return 20%-40% of adjusted profit after tax to shareholders.

Using last year’s adjusted EPS of 13.97 euro cents (12.04p) as a guide, this would be 2.41p- 4.82p, implying an impressive yield of up to 3.8%.

Pros and cons

However, there are risks.

Covid-19 reminded us how vulnerable the travel industry can be to widespread disruption. And there’s nowhere to hide in a low-margin business if things start to go wrong.

Cyber security threats are also an ever-present risk for any online business. Also, the sector remains very competitive.

But what I like most about the company is its ability to generate cash. During 2023-2024 it repaid (net) €38.8m of borrowings. As of 31 December 2024, it reported a net cash position of €1.7m.

And its shares are currently trading at 10.5 times historic earnings. Compared to fellow travel agent, On The Beach (20.8), this is cheap. According to the London Stock Exchange, the sector average is 14.8.

However, the key question is whether the flatlining of bookings is a blip or the first sign of a more fundamental problem.

Of course, nobody knows for sure. But looking at June in isolation, both booking volumes and the group’s ABV increased. And although European bed prices are falling slightly, this is helping to boost demand.

In addition, although not expected to be launched until later this year, Hostelworld says its other growth initiatives are progressing as planned.

On this basis, it sounds as though growth has resumed once more and that the company has an exciting period ahead. Long-term investors could consider adding the stock — which currently trades at a discount to its peers — to their portfolios.