Over the past six months, Hilton Grand Vacations has been a great trade, beating the S&P 500 by 14.3%. Its stock price has climbed to $48.75, representing a healthy 17.5% increase. This run-up might have investors contemplating their next move.

Is there a buying opportunity in Hilton Grand Vacations, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Hilton Grand Vacations Not Exciting?

We’re happy investors have made money, but we're sitting this one out for now. Here are three reasons why there are better opportunities than HGV and a stock we'd rather own.

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 performance shows its demand has slowed significantly as its annualized revenue growth of 11.6% over the last two years was well 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 5.3% annually over the last five years while its revenue grew by 22.1%. This tells us the company became less profitable on a per-share basis as it expanded.

3. High Debt Levels Increase Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Hilton Grand Vacations’s $11.42 billion of debt exceeds the $259 million of cash on its balance sheet. Furthermore, its 11× net-debt-to-EBITDA ratio (based on its EBITDA of $985 million 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 isn’t one of our picks. With its shares beating the market recently, the stock trades at 13.1× forward P/E (or $48.75 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're fairly confident there are better stocks to buy right now. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Like More Than Hilton Grand Vacations

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