The post-pandemic urge to travel remains robust, which should drive continued growth this summer and beyond. Moreover, China’s lifting of travel restrictions is a significant tailwind for the travel industry, with the nation contributing the most to outbound travel. However, given the possibility of a looming recession, not all travel companies might stay afloat.
Hence, it could be wise to add quality travel stock, Travel + Leisure Co. (TNL), to your watchlist. Conversely, it seems wise to steer clear of fundamentally weak travel stocks Sonder Holdings Inc. (SOND) and Hall of Fame Resort & Entertainment Company (HOFV). Let’s understand this in detail.
The travel industry’s outlook radiates promise as leisure and business travel demand is expected to remain strong this year. Deloitte Insights reveals that half of Americans plan to take a leisure vacation this summer, up from 46% in 2022. Moreover, one in five individuals intends to compensate for missed trips during the COVID-19 pandemic.
As for group business travel, key statistics, including a convention center booking increase of 13% this year compared to 2022, point toward a robust year for group travel. According to a survey by American Express (AXP), 65% of respondents anticipate their expenditure on meetings and events to increase in 2023.
Furthermore, with the lifting of COVID-19 restrictions, Chinese travelers are expected to resume their journeys, exerting a noticeable influence on both domestic and international travel sectors. In fact, before the pandemic, China was the world’s largest outbound travel market, with 154 million trips and $255 billion spent by Chinese travelers.
While travel demand currently remains strong, it could get hampered if companies are forced to cut down expenses in the face of a worsening economic outlook. Bank of America's (BAC) chief economist Michael Gapen believes the U.S. economy will face a mild recession later this year.
Against this backdrop, adding fundamentally sound travel stock TNL to your watchlist could be wise. However, struggling stocks SOND and HOFV might be best avoided due to their weak financials and bleak growth prospects.
Let’s discuss the fundamentals of these stocks in detail.
Stock to Watch:
Travel + Leisure Co. (TNL)
TNL offers hospitality services and products. It operates through two segments, Vacation Ownership, which develops and sells vacation ownership interests to individuals; and Travel and Membership, which includes travel businesses such as vacation exchange brands, travel technology platforms, memberships, and direct-to-consumer rentals.
On April 25, TNL and Caravan Wellness announced their partnership to provide exclusively curated health and wellness video content for TNL’s club members. This initiative is expected to attract more members, boost subscription revenues, and enhance customer satisfaction for busy travelers, ultimately driving the company’s financial success.
The company’s outlook remains positive as consumers continue to prioritize travel. Michael D. Brown, president and CEO of TNL, said, "Steady summer bookings as well as the continuing strength in VPG give us confidence to carry through the performance in the first quarter to the full year and we are raising our outlook for adjusted EBITDA to a range of $925 to $945 million.”
TNL’s trailing-12-month gross profit margin of 48.42% is 37.4% higher than the industry average of 35.24%. And its trailing-12-month EBITDA margin of 22.24% is 104.5% higher than the 10.88x industry average. Also, the stock’s trailing-12-month net income margin of 10.17% compares with the industry average of 4.28%.
TNL’s net revenues for the fiscal first quarter that ended March 31, 2023, increased 8.7% year-over-year to $879 million. Its adjusted EBITDA grew 8.2% from the year-ago value to $184 million. In addition, the company’s adjusted net income and adjusted EPS rose 16.6% and 29% year-over-year to $70 million and $0.89, respectively.
The consensus revenue estimate of $3.80 billion for the fiscal year (ending December 2023) reflects a 6.4% year-over-year improvement. The consensus EPS estimate of $5.51 for the ongoing year indicates a 21.9% rise year-over-year.
Moreover, the company surpassed the consensus EPS estimates in three of the four trailing quarters, which is impressive.
Shares of TNL have gained 4.8% over the past five days and 12.2% over the past month to close the last trading session at $40.74.
TNL’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
TNL has a B grade for Momentum, Value, and Quality. It is ranked #4 in the 22-stock Travel - Hotels/Resorts industry.
In addition to the POWR Ratings I’ve just highlighted, you can see TNL’s ratings for Growth, Stability, and Sentiment here.
Stocks to Sell:
Sonder Holdings Inc. (SOND)
SOND provides diverse accommodation options, from spacious rooms to fully equipped suites and apartments. Its product portfolio caters to different types of travelers, such as leisure, families, digital nomads, and business travelers. With about 9,700 available units across 43 cities and ten countries, it also has approximately 7,900 additional units.
SOND’s trailing-12-month gross profit margin and EBITDA margin of negative 11.12% and 48.69% compare to the industry averages of 35.24% and 10.88%, respectively. Likewise, its trailing-12-month levered FCF margin of 0.79% is 77.4% lower than the industry average of 3.49%.
For the fiscal first quarter that ended March 31, 2023, SOND’s cost and operating expenses increased 16.6% year-over-year to $205.48 million. The company’s net loss stood at $86.43 million, compared to an income of $10.96 million in the prior year’s period, while its loss per share widened 116.7% year-over-year to $0.39.
For the fiscal year ending December 2023, analysts expect SOND’s loss per share to widen 21.9% year-over-year to $0.98. The company is expected to report a loss per share of $0.61 for the fiscal year 2024. Also, SOND missed its consensus EPS estimates in three of the trailing four quarters, which is disappointing.
Over the past six months, the stock has plunged 58.5% to close the last trading session at $0.63.
SOND’s weak fundamentals are reflected in its POWR Ratings. It has an overall D rating, equating to Sell in our proprietary rating system.
The stock has an F grade for Sentiment and a D for Growth and Stability. It is ranked #21 out of 22 stocks in the Travel - Hotels/Resorts industry.
Click here to see the other ratings of SOND for Value, Quality, and Momentum.
Hall of Fame Resort & Entertainment Company (HOFV)
HOFV, known as the Pro Football Hall of Fame, is a resort and entertainment company. It owns the leading sports, entertainment, and media enterprise centered around the Pro Football Hall of Fame in Canton, Ohio.
The stock’s trailing-12-month gross profit margin and EBITDA margin of negative 178.29% and 183.91% compare to the respective industry averages of 35.24% and 10.88%. Additionally, HOFV’s trailing-12-month asset turnover ratio of 0.04x is 95.9% lower than the industry average of 1.01x.
For the first quarter that ended March 31, 2023, HOFV’s loss from operations widened 46.3% year-over-year to $14.57 million. Its adjusted EBITDA grew 78.9% from the year-ago value to $12.01 million.
Furthermore, the company’s net loss and loss per share worsened by 114.7% and 103.5% from the year-ago values to $19.39 million and $3.48, respectively.
Analysts expect HOFV to report a loss per share of $8.83 for the fiscal year ending December 2023. Similarly, the company is expected to report a loss per share of $7.80 for the fiscal year 2024. Also, the company missed its consensus revenue in three of the trailing four quarters.
Shares of HOFV have plunged 38.6% over the past six months to close the last trading session at $8.10.
HOFV’s bleak outlook is reflected in its overall F rating, equating to a Strong Sell in our POWR Ratings system. It has an F grade for Value and Quality and a D for Growth and Sentiment. The stock is ranked last within the same industry.
Click here to access additional HOFV ratings (Stability and Momentum).
What To Do Next?
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TNL shares were trading at $40.73 per share on Friday afternoon, down $0.01 (-0.02%). Year-to-date, TNL has gained 13.27%, versus a 12.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
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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