Since March 2020, the S&P 500 has delivered a total return of 149%. But one standout stock has nearly doubled the market - over the past five years, Wyndham has surged 261% to $92.17 per share. Its momentum hasn’t stopped as it’s also gained 16.1% in the last six months, beating the S&P by 15.9%.
Is there a buying opportunity in Wyndham, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
We’re happy investors have made money, but we're swiping left on Wyndham for now. Here are three reasons why you should be careful with WH and a stock we'd rather own.
Why Is Wyndham Not Exciting?
Established in 1981, Wyndham (NYSE: WH) is a global hotel franchising company with over 9,000 hotels across nearly 95 countries on six continents.
1. Weak RevPAR Growth Points to Soft Demand
Investors interested in Travel and Vacation Providers companies should track RevPAR (revenue per available room) in addition to reported revenue. This metric accounts for daily rates and occupancy levels, painting a holistic picture of Wyndham’s demand characteristics.
Wyndham’s RevPAR came in at $40.01 in the latest quarter, and over the last two years, its year-on-year growth averaged 2.4%. 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 Wyndham’s revenue to rise by 6.6%. While this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.
3. Previous Growth Initiatives Haven’t Impressed
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).
Wyndham historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.4%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
Wyndham isn’t a terrible business, but it doesn’t pass our bar. With its shares topping the market in recent months, the stock trades at 19.1× forward price-to-earnings (or $92.17 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.
Stocks We Would Buy Instead of Wyndham
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