Since July 2021, the S&P 500 has delivered a total return of 70.5%. But one standout stock has more than doubled the market - over the past five years, Marriott has surged 162% to $371 per share. Its momentum hasn’t stopped as it’s also gained 14.7% in the last six months thanks to its solid quarterly results, beating the S&P by 7.5%.
Is there a buying opportunity in Marriott, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Marriott Will Underperform?
We’re glad investors have benefited from the price increase, but we’re cautious about Marriott. Here are three reasons you should be careful with MAR, plus one stock we’d rather own.
1. Weak RevPAR Growth Points to Soft Demand
In addition to reported revenue, RevPAR (revenue per available room) is a useful data point for analyzing Consumer Discretionary - Travel and Vacation Providers companies. This metric accounts for daily rates and occupancy levels, painting a holistic picture of Marriott’s demand characteristics.
Marriott’s RevPAR came in at $197.07 in the latest quarter, and over the last two years, its year-on-year growth averaged 6.5%. 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. Free Cash Flow Projections Disappoint
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts’ consensus estimates show they’re expecting Marriott’s free cash flow margin of 10.6% for the last 12 months to remain the same.
3. New Investments Bear Fruit as ROIC Jumps
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Fortunately, Marriott’s ROIC averaged 3 percentage point increases each year over the last few years. This is a good sign, and we hope the company can continue improving.
Final Judgment
Marriott falls short of our quality standards. With its shares topping the market in recent months, the stock trades at 31.4× forward P/E (or $371 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Like More Than Marriott
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