Target Hospitality has gotten torched over the last six months - since January 2025, its stock price has dropped 27.3% to $7.39 per share. This may have investors wondering how to approach the situation.

Following the drawdown, is now an opportune time to buy TH? Find out in our full research report, it’s free.

Why Does TH Stock Spark Debate?

Building mini-communities at places such as oil drilling sites, Target Hospitality (NASDAQ: TH) is a provider of specialty workforce lodging accommodations and services.

Two Things to Like:

1. Operating Margin Reveals a Well-Run Organization

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Target Hospitality’s operating margin has been trending down over the last 12 months, but it still averaged 32.8% over the last two years, elite for a consumer discretionary business. This shows it’s an well-run company with an efficient cost structure, and we wouldn’t weigh the short-term trend too heavily.

2. New Investments Bear Fruit as ROIC Jumps

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Target Hospitality’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

One Reason to be Careful:

Decline in Utilized Beds Points to Weak Demand

Revenue growth can be broken down into changes in price and volume (for companies like Target Hospitality, our preferred volume metric is utilized beds). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Target Hospitality’s utilized beds came in at 9,898 in the latest quarter, and over the last two years, averaged 2.8% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Target Hospitality might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.

Final Judgment

Target Hospitality’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 22.7× forward EV-to-EBITDA (or $7.39 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.

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