Since June 2024, Hilton Grand Vacations has been in a holding pattern, posting a small loss of 1.9% while floating around $40.28. The stock also fell short of the S&P 500’s 11.9% gain during that period.

We don't have much confidence in Hilton Grand Vacations. Here are three reasons why there are better opportunities than HGV and a stock we'd rather own.

Why Is Hilton Grand Vacations Not Exciting?

Spun off from Hilton Worldwide in 2017, Hilton Grand Vacations (NYSE:HGV) is a global timeshare company that provides travel experiences for its customers through its timeshare resorts and club membership programs.

1. Lackluster Revenue Growth

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. Hilton Grand Vacations’s recent history shows its demand slowed as its annualized revenue growth of 12.7% over the last two years is below its five-year trend.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Hilton Grand Vacations, its EPS declined by 20.6% annually over the last five years while its revenue grew by 20.3%. This tells us the company became less profitable on a per-share basis as it expanded.

3. High Debt Levels Increase Risk

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Hilton Grand Vacations’s $13.31 billion of debt exceeds the $297 million of cash on its balance sheet. Furthermore, its 12× net-debt-to-EBITDA ratio (based on its EBITDA of $1.11 billion over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Hilton Grand Vacations could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Hilton Grand Vacations can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

Final Judgment

Hilton Grand Vacations isn’t a terrible business, but it doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 13.3× forward EV-to-EBITDA (or $40.28 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at Wingstop, a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Would Buy Instead of Hilton Grand Vacations

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