The hotel industry is focused on the provision of short-term lodging, including hotels and motels, as well as accommodation-related services. It’s one segment within the broader hospitality (or leisure) industry. The hotel industry is split into two main categories of companies: C-corporation hotels such as Marriott International Inc. and Hilton Worldwide Holdings Inc.; and hotel real estate investment trusts (REITs) such as DiamondRock Hospitality Co. and Park Hotels & Resorts Inc.
The hotel industry was severely affected by the COVID-19 pandemic, travel and dining restrictions, and other social distancing rules, although many companies have begun to recover as restrictions have loosened.
C-corporation hotels are generally engaged in hotel management, branding and marketing, and sometimes franchise licensing. They often own little real estate, and their legal structure requires them to pay corporate taxes on dividends. These hotel stocks are best represented by the S&P 1500 Hotels, Resorts, and Cruise Lines Sub-Industry Index, which had a total return over the past year of -17.9%, as of Sept. 16, 2022.
Hotel REITs, on the other hand, are companies that focus more on the acquisition, ownership, and operation of hotel real estate. Some REITs even manage the hotels that they own. They are legally structured in a way that exempts them from paying taxes on distributed dividends, but they must distribute 90% of their taxable income to shareholders to be eligible as a REIT. These hotel REITs are best represented by the S&P 1500 Hotel & Resort REITs Sub-Industry Index, which had a total return of -6.7% over the past year.
Hotel stocks have underperformed compared to the broader equity market, as represented by the Russell 1000 Index, which provided a total return of -13.8% over the past 12 months, as of Sept. 16, 2022. Hotel REITs as a group outperformed the broader market over the same time period. All statistics in the tables below are as of Sept. 16, 2022.
The hotel industry suffered from a severe reduction in travel during the COVID-19 pandemic. But the rollout of vaccines and easing of restrictions is sparking rising demand from leisure travelers, with the the global leisure travel industry projected to be valued at $6.4 trillion by 2027. By contrast, the pandemic may have permanently impacted business travel, with the future of that industry uncertain.
In the first half of this story, we look at the top three hotel stocks with the best value, the fastest growth, and the best performance. In the second half, we examine the top three hotel REITs with the best value, the fastest growth, and the most momentum. We use the price-to-earnings ratio (P/E) to determine the best value stocks and REITs, sales and/or earnings per share (EPS) growth to determine the fastest growth stocks and REITs, and total return to determine the stocks and REITs with the best performance or momentum.
These are the hotel stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.
Source: YCharts
These are the top hotel stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and most recent quarterly YOY EPS growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.
Source: YCharts
These are the hotel stocks that had the best returns or smallest declines in total return over the past 12 months out of the companies we looked at.
Source: YCharts
These are the hotel REITs with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.
Source: YCharts
These are the hotel REITs with the highest YOY sales growth for the most recent quarter. Rising sales can help investors to both identify companies that are able to grow revenue through organic or new ways and find growing companies that have not yet reached profitability. In addition, accounting factors that may not reflect the overall strength of the business can significantly influence earnings per share. However, sales growth can also be potentially misleading about the strength of a business, because growing sales on money-losing businesses can be harmful if the company has no plan to reach profitability.
Source: YCharts
These are the hotel REITs that had the highest total return over the last 12 months
Source: YCharts
The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.
Boston University, Boston Hospitality Review. “C-corporation Hotels vs. Hotel-REITs: A Theoretical and Practical Comparison.”
YCharts. “Financial Data.”
GlobeNewsWire. "Leisure Travel Market Size Will Reach US$ 6,347.8 Billion by 2027 – Exclusive Report by Astute Analytica."
Wall Street Journal. "Betting on Corporate Travel Is Risky Business."
Sonder Holdings Inc. "Shareholder Letter Q2 2022," Pages 2, 15.
Choice Hotels International Inc. "Choice Hotels Expands Everhome Suites Across the U.S. with Largest Transaction in the Brand's History."
Hilton Worldwide Holdings Inc. "Hilton Reports Second Quarter Results; Exceeds Expectations and Raises Full Year Outlook," Pages 1, 6.
Hyatt Hotels Corp. "Hyatt Reports Second Quarter 2022 Results."
Sunstone Hotel Investors Inc. "SUNSTONE HOTEL INVESTORS PROVIDES OPERATIONS UPDATE."
Apple Hospitality REIT Inc. "Apple Hospitality REIT Announces October 2022 Distribution."
Ryman Hospitality Properties Inc. "Ryman Hospitality Properties, Inc. Reports Second Quarter 2022 Results."
Pebblebrook Hotel Trust. "Pebblebrook Hotel Trust Declares Dividends for Third Quarter 2022."
Chatham Lodging Trust. "Chatham Lodging Announces Preferred Dividend."
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