The travel industry’s prospects look promising given the continued demand for travel, growing preference for high-quality experiences, and advances in tech.
Given the industry’s bright prospects, fundamentally strong travel stocks Atour Lifestyle Holdings Limited (ATAT), Playa Hotels & Resorts N.V. (PLYA), and Travel + Leisure Co. (TNL) could be worth watching.
During the pandemic, few industries were hit as severely as the travel and tourism sector. However, the sector bounced back strongly on the back of revenge travel. The industry looks well-positioned to perform well this year due to the recovery in business travel, expanding leisure travel demand, workplace flexibility, and growing interest in in-destination experiences.
The U.S. Travel Association released its January 2024 findings, which showed that air passenger growth rose 6%, and foreign visits to the U.S. increased by 24%. According to the Longswoods International study, 93% of American travelers have travel plans in the next six months, the highest level in three years.
According to the UNWTO World Tourism Barometer, international tourism ended in 2023 at 88% of pre-pandemic levels, with 1.3 billion international arrivals. Last year, international tourism receipts touched $1.4 trillion. International tourism is expected to recover fully to pre-pandemic levels in 2024, with estimates pointing to a 2% growth above 2019 levels.
Driven by strong demand, CBRE forecasts a 3% increase in RevPAR growth in 2024, with occupancy improving by 45 basis points and the average daily rate rising by 2.3%. This year, the lodging industry’s RevPAR is expected to be 13.2% higher than 2019 levels. The worldwide travel & tourism market is predicted to grow at a 3.5% CAGR to reach $1.06 trillion by 2028.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Travel - Hotels/Resorts picks, beginning with the third choice.
Stock #3: Atour Lifestyle Holdings Limited (ATAT)
Headquartered in Shanghai, China, ATAT offers themed hotels, including music, basketball, and literary hotels, catering to diverse lifestyles. The company provides hotel management services and sells related products.
ATAT’s trailing-12-month levered FCF margin of 30.33% is 447.3% higher than the 5.54% industry average. Its 15.80% trailing-12-month net income margin is 232.6% higher than the 4.75% industry average. Also, its 45.15% trailing-12-month Return on Common Equity is 307.5% higher than the 11.08% industry average.
During the fiscal fourth quarter ended December 31, 2023, ATAT’s net revenues grew 140.4% year-over-year to RMB1.51 billion ($208.04 million). It reported adjusted net income and EBITDA of RMB222.24 million ($30.72 million) and RMB250.82 million ($34.67 million), up 175.8% and 116.1% from the previous-year quarter, respectively.
Street expects ATAT's revenue for the quarter ended March 31, 2024, to increase 62% year-over-year to $178.21 million. Its EPS for fiscal 2024 is expected to grow 28.5% year-over-year to $1.16. Over the past three months, the stock has gained 12% to close the last trading session at $18.98.
ATAT's POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ATAT has an A grade for Quality and a B for Growth. Within the Travel - Hotels/Resorts industry, it is ranked #5 out of 19 stocks. To see ATAT's additional ratings for Value, Momentum, Stability, and Sentiment, click here.
Stock #2: Playa Hotels & Resorts N.V. (PLYA)
Headquartered in Amsterdam, the Netherlands, PLYA owns, develops, and operates resorts in prime beachfront locations in Mexico and the Caribbean. It also organizes weddings, lodging, dining, entertainment, meetings, events, and other hospitality services in its hotels.
PLYA’s trailing-12-month gross profit margin of 47.13% is 31.2% higher than the industry average of 35.91%. Its trailing-12-month levered FCF margin of 8.95% is 61.5% higher than the industry average of 5.54%. Its 5.58% trailing-12-month net income margin is 17.5% higher than the 4.75% industry average.
For the fiscal fourth quarter that ended December 31, 2023, PLYA’s revenue increased 15% year-over-year to $242.52 million. Also, its adjusted EBITDA increased 2.9% from the year-ago value to $60.83 million.
In addition, the company’s adjusted net income amounted to $6.05 million and $0.04 per share, respectively.
For the quarter ended March 31, 2024, PLYA’s revenue and EPS are expected to increase 3.3% and 5.1% year-over-year to $282.76 million and $0.33, respectively. It surpassed the revenue estimates in each of the trailing four quarters. Over the past six months, the stock has gained 38.8% to close the last trading session at $9.59.
PLYA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #4 in the same industry. It has a B grade for Value, Sentiment, and Quality. Click here to see PLYA's Growth, Momentum, and Stability ratings.
Stock #1: Travel + Leisure Co. (TNL)
TNL engages in vacation ownership and hospitality services, including selling vacation ownership interests, managing properties, and operating travel businesses and technology platforms. The company also offers direct-to-consumer rentals and private-label travel booking solutions.
TNL’s trailing-12-month net income margin of 10.56% is 122.3% higher than the industry average of 4.75%. Its trailing-12-month EBIT margin of 19.95% is 162.5% higher than the industry average of 7.60%. Its 22.93% trailing-12-month EBITDA margin is 108.5% higher than the 11% industry average.
TNL’s net revenues for the fourth quarter, which ended December 31, 2023, amounted to $935 million, up 4% from the previous-year quarter. The company generated operating income of $191 million, up 18.6% from the prior year’s quarter. Its adjusted net income and EPS increased 37.1% and 52.3% year-over-year to $144 million and $1.98, respectively.
Analysts expect TNL’s EPS for the quarter ending June 30, 2024, to increase 4% year-over-year to $1.38. Its revenue for the quarter ended March 31, 2024, is expected to increase 2.9% year-over-year to $904.52 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. Shares of TNL have gained 37.5% over the past six months to close the last trading session at $47.42.
It’s no surprise that TNL has an overall B rating, equating to a Buy in our POWR Ratings system.
It has a B grade for Value, Sentiment, and Quality. It is ranked #3 in the Travel - Hotels/Resorts industry. Beyond what is stated above, we’ve also rated TNL for Growth, Momentum, and Stability. Get all TNL ratings here.
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TNL shares were trading at $47.68 per share on Thursday morning, up $0.26 (+0.55%). Year-to-date, TNL has gained 23.30%, versus a 10.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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