Hall of Fame Resort & Entertainment Company (HOFV) is grappling with various macroeconomic and financial challenges. The company’s massive losses, mounting debt, and declining market share are causing investors to question the stock’s reliability, resulting in a noticeable erosion of market sentiment.

Given its weak fundamentals and the challenging macro environment, HOFV is expected to plunge further and is best avoided now. In this piece, I have discussed several reasons why investing in this travel stock could be risky.

As stated in its most recent annual report, the company faces several risks that could hinder its ability to achieve its business objectives and adversely impact its financial performance. HOFV has limited historical performance and relies heavily on public financing and debt to fund its operations.

Also, the company is partially reliant on sponsorship agreements to generate revenues. It has further recognized that it is susceptible to negative impacts resulting from tenant defaults or bankruptcy.

Furthermore, HOFV’s operations have a high fixed cost structure, which means that any decrease in revenue could lead to significantly lower profit margins. For the full-year 2022, HOFV’s revenue from sponsorships, net of activation costs, decreased 55.2% year-over-year to $2.70 million. Its loss from operations widened 4.4% from the prior year’s period to $37.99 million, while its net loss stood at $46.18 million.

As of December 31, 2022, the company’s total liabilities stood at $265.04 million, compared to $132.71 million as of December 31, 2021. HOFV might require increased leverage for its business operations, intensifying the risks associated with its considerable indebtedness. 

Shares of HOFV have declined 27.6% over the past six months and 64.3% over the past year to close the last trading session at $8.78.

Let's delve deeper into the other factors that make HOFV a risky investment option.

Deteriorating Financials

HOFV’s revenue decreased 3.3% year-over-year to $3.10 million in the fourth quarter that ended December 31, 2022. Its loss from operations widened 5.1% from the year-ago value to $8.20 million. Also, the company’s adjusted EBITDA loss increased 22.2% year-over-year to $5.50 billion.

Furthermore, the net loss attributable to HOFV shareholders stood at $18.50 million, compared to an income of $9.30 million in the previous year’s period. Its loss per share came in at $3.36, compared to earnings per share of $8.64 in the same quarter in 2021.

Negative Analyst Estimates

Analysts expect HOFV’s loss per share to widen 14.2% year-over-year to $2.01 in the first quarter ending March 2023. The company is expected to report a loss per share of $8.56 for the current year ending December 2023. Furthermore, the stock failed to surpass its consensus revenue estimates in three of the trailing four quarters, which is disappointing.

Poor Profitability

HOFV’s trailing-12-month gross profit margin of negative 156.44% compares to the industry average of 35.00%. The stock's trailing-12-month EBITDA and net income margins of negative 162.42% and 287.14% are lower than the industry averages of 11.43% and 4.50%.

Additionally, its trailing-12-month ROCE, ROTC, and ROTA of negative 23.63%, 6.49%, and 10.06% are lower than the industry averages of 11.79%, 6.34%, and 3.92%, respectively. Also, its trailing-12-month asset turnover ratio of 0.04x is 96.1% lower than the 1.02x industry average.

POWR Ratings Reflect Bleak Prospects

HOFV’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, translating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HOFV has an F grade for Quality, consistent with its lower-than-industry profitability. Also, the stock has a D for Growth, in sync with its underwhelming financial performance in the last reported quarter.

HOFV is ranked last in the 22-stock Travel - Hotels/Resorts industry.

Click here to access the additional Value, Stability, Sentiment, and Momentum grades for HOFV.

View all the stocks in the Travel - Hotels/Resorts industry here.

Bottom Line

HOFV has reported disappointing results for the fourth quarter and fiscal year 2022. Furthermore, analysts are bearish about the company’s prospects. The stock is trading below its 50-day and 200-day moving averages of $10.82 and $13.66, respectively, indicating a downtrend.

Given HOFV’s weak financials, bleak growth prospects, low profitability, and mounting debt, it could be wise to avoid this travel stock now.

Stocks to Consider Instead of Hall of Fame Resort & Entertainment Company (HOFV)

Unfortunately, the likelihood of HOFV outperforming in the upcoming weeks and months ahead is significantly compromised. Nonetheless, there are several stocks in the Travel - Hotels/Resorts industry with impressive POWR Ratings. So, consider these three B-rated (Buy) stocks instead:

Marriott Vacations Worldwide Corporation (VAC)

Hilton Grand Vacations Inc.  (HGV)

Playa Hotels & Resorts N.V. (PLYA).

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HOFV shares were trading at $9.11 per share on Friday afternoon, up $0.33 (+3.76%). Year-to-date, HOFV has gained 13.03%, versus a 6.97% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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