3 Reasons to Sell WH and 1 Stock to Buy Instead
Over the past six months, Wyndham’s shares (currently trading at $71.80) have posted a disappointing 5.8% loss, well below the S&P 500’s 13.6% gain. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is there a buying opportunity in Wyndham, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Wyndham Will Underperform?
Even with the cheaper entry price, we’re sitting this one out for now. Here are three reasons we avoid WH, 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 Wyndham’s demand characteristics.
Wyndham’s RevPAR came in at $47.01 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. 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 11.9%, somewhat low compared to the best consumer discretionary companies that consistently pump out 65%+.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Unfortunately, Wyndham’s ROIC averaged 3.2 percentage point decreases each year over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
Final Judgment
Wyndham doesn’t pass our quality test. Following the recent decline, the stock trades at 14.7× forward P/E (or $71.80 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better stocks to buy right now. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Like More Than Wyndham
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