STRONG DEMAND, ADR and RevPAR are leading to an increase in the value of hotel stock, according Zacks. The research company’s hotel and motel index has outperformed the broader S&P 500 index over the past six months, gaining 12.5 percent to S&P’s 6.9 percent.
Low oil prices, along with increases in employment, real income and household net worth overcame moderate first-quarter GDP growth of 1.2 percent to shore up consumer confidence, according to Zacks. That confidence led to rises in business and leisure travel, along with higher transaction volumes, all of which are expected to continue as the GDP is projected to grow 2.2 percent in 2017.
Despite impingements on the hotel industry by an international travel market slowed by a strengthening dollar and the Trump administration’s immigration policies, Zacks projects hotel stocks still have room to grow. For example, the industry’s Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization ratio of 10.51 over the past 12 months is better than its seen in the past five years, which has averaged 12.72 with a high point of 17.45. It’s also higher than the 10.83 EV/EBITDA for the S&P 500 in general.
“Overall, the valuation of the industry from an EV/EBITDA perspective looks attractive when compared with its own range in the same time period. Moreover, [the industry’s] somewhat lower-than-market positioning calls for some more upside in the quarters ahead,” Zacks said in its July outlook report. “Though industry-wide headwinds continue to weigh on investor sentiment, hotel companies have good reasons to remain optimistic. Particularly, those willing to venture out of their comfort zones and be responsive to changing consumer expectations to provide a more holistic offering, are sure to emerge winners.