Over the last six months, Hyatt Hotels’s shares have sunk to $136.36, producing a disappointing 14.5% loss while the S&P 500 was flat. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Hyatt Hotels, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Hyatt Hotels Will Underperform?

Despite the more favorable entry price, we don't have much confidence in Hyatt Hotels. Here are three reasons why H doesn't excite us and a stock we'd rather own.

1. Weak RevPAR Growth Points to Soft Demand

We can better understand Travel and Vacation Providers companies by analyzing their RevPAR, or revenue per available room. This metric accounts for daily rates and occupancy levels, painting a holistic picture of Hyatt Hotels’s demand characteristics.

Hyatt Hotels’s RevPAR came in at $134.55 in the latest quarter, and over the last two years, its year-on-year growth averaged 4.9%. This performance was underwhelming and suggests it might have to invest in new amenities such as restaurants and bars to attract customers - this isn’t ideal because expansions can complicate operations and be quite expensive (i.e., renovations and increased overhead).

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Hyatt Hotels’s revenue to rise by 3.2%, close to its 6.9% annualized growth for the past five years. This projection is underwhelming and implies its newer products and services will not accelerate its top-line performance yet.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Hyatt Hotels’s five-year average ROIC was negative 2.9%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Hyatt Hotels, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 42.7× forward P/E (or $136.36 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d suggest looking at the Amazon and PayPal of Latin America.

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