The travel industry is expected to grow due to a revival of travel demand, rising demand for high-quality experiences, technological advancements, the resurgence of business travel, and the rise of remote work.
Given the industry’s solid growth prospects, investors could consider buying fundamentally strong travel stocks: Atour Lifestyle Holdings Limited (ATAT), Playa Hotels & Resorts N.V. (PLYA), and Travel + Leisure Co. (TNL). Before diving deeper into their fundamentals, let’s discuss what’s happening in the travel industry.
The travel industry has been steadily recovering, fueled by increased demand for leisure travel, hotels, airlines, and cruise lines. It is expected to perform well this year as business travel recovers and leisure travel demand expands. The global travel market is projected to grow by $3.39 trillion from 2023 to 2027 at a projected 14.2% CAGR.
According to the World Travel & Tourism Council (WTTC), travel and tourism will have a record-breaking year in 2024 and will contribute a record-breaking $11.1 trillion to the global economy. This growth will be driven by increasing consumer demand and advancements in technology and infrastructure.
International visitor spending this year is expected to reach $1.89 trillion, within touching distance of the 2019 peak. By 2034, the WTTC expects that the sector will boost the global economy with a contribution of $16 trillion, nearly 11.4% of the entire economic landscape.
Investors’ interest in travel stocks is evident from the Defiance Hotel, Airline, and Cruise ETF’s (CRUZ) 19.4% returns over the past six months.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Travel - Hotels/Resorts picks, beginning with the third choice.
Stock #3: Atour Lifestyle Holdings Limited (ATAT)
Headquartered in Shanghai, China, ATAT offers themed hotels, including music, basketball, and literary hotels, catering to diverse lifestyles. The company provides hotel management services and sells related products.
ATAT’s trailing-12-month levered FCF margin of 30.33% is 441.8% higher than the 5.60% industry average. Its 15.80% trailing-12-month net income margin is 238.7% higher than the 4.66% industry average. Also, its 45.15% trailing-12-month Return on Common Equity is 300.2% higher than the 11.28% industry average.
For the fiscal fourth quarter ended December 31, 2023, ATAT’s net revenues grew 140.4% year-over-year to RMB1.51 billion ($212 million). It reported adjusted net income and EBITDA of RMB222.24 million ($31.30 million) and RMB250.82 million ($35.33 million), up 175.8% and 116.1% from the previous-year quarter, respectively.
Street expects ATAT's revenue for the quarter ended March 31, 2024, to increase 62% year-over-year to $178.21 million. Its EPS for fiscal 2024 is expected to grow 28.5% year-over-year to $1.16. The stock has gained marginally year-to-date to close the last trading session at $17.40.
ATAT's POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ATAT has an A grade for Quality and a B for Growth. Within the Travel - Hotels/Resorts industry, it is ranked #5 out of 19 stocks. To see ATAT's additional ratings for Value, Momentum, Stability, and Sentiment, click here.
Stock #2: Playa Hotels & Resorts N.V. (PLYA)
Headquartered in Amsterdam, the Netherlands, PLYA owns, develops, and operates resorts in prime beachfront locations in Mexico and the Caribbean. It also organizes weddings, lodging, dining, entertainment, meetings, events, and other hospitality services in its hotels.
PLYA’s trailing-12-month gross profit margin of 47.13% is 29.8% higher than the industry average of 36.30%. Its trailing-12-month EBITDA margin of 26.28% is 138% higher than the industry average of 11.04%. Its 4.79% trailing-12-month CAPEX / Sales is 57.5% higher than the 3.04% industry average.
During the fiscal fourth quarter that ended December 31, 2023, PLYA’s revenue increased 15% year-over-year to $242.52 million. Also, its adjusted EBITDA increased 2.9% from the year-ago value to $60.83 million.
In addition, the company’s adjusted net income amounted to $6.05 million and $0.04 per share, respectively.
For the quarter ended March 31, 2024, PLYA’s revenue and EPS are expected to increase 3.3% and 5.1% year-over-year to $282.76 million and $0.33, respectively. It surpassed the revenue estimates in each of the trailing four quarters. Over the past six months, the stock has gained 32.1% to close the last trading session at $9.21.
PLYA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #4 in the same industry. It has a B grade for Value, Sentiment, and Quality. Click here to see PLYA's Growth, Momentum, and Stability ratings.
Stock #1: Travel + Leisure Co. (TNL)
TNL engages in vacation ownership and hospitality services, including selling vacation ownership interests, managing properties, and operating travel businesses and technology platforms. The company also offers direct-to-consumer rentals and private-label travel booking solutions.
TNL’s trailing-12-month Return on Total Assets of 5.88% is 38.3% higher than the industry average of 4.25%. Its trailing-12-month EBIT margin of 19.95% is 159.6% higher than the industry average of 7.68%. Its 22.93% trailing-12-month EBITDA margin is 107.7% higher than the 11.04% industry average.
TNL’s net revenues for the fourth quarter, which ended December 31, 2023, amounted to $935 million, up 4% from the previous year quarter. The company generated operating income of $191 million, up 18.6% from the prior year’s quarter. Its adjusted net income and EPS increased 37.1% and 52.3% year-over-year to $144 million and $1.98, respectively.
Analysts expect TNL’s EPS for the quarter ending June 30, 2024, to increase 4% year-over-year to $1.38. Its revenue for the quarter ended March 31, 2024, is expected to grow 2.9% year-over-year to $904.52 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Shares of TNL have gained 33% over the past six months to close the last trading session at $44.27.
It’s no surprise that TNL has an overall B rating, equating to a Buy in our POWR Ratings system.
It has a B grade for Value, Sentiment, and Quality. It is ranked #3 in the Travel - Hotels/Resorts industry. Beyond what is stated above, we’ve also rated TNL for Growth, Momentum, and Stability. Get all TNL ratings here.
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TNL shares were trading at $43.87 per share on Tuesday morning, down $0.40 (-0.90%). Year-to-date, TNL has gained 13.44%, versus a 6.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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