The hotel and leisure industry may have recovered, but these stocks are still struggling to turn a profit.
The travel and vacation industry is booming again. Now, many investors who invested during the COVID-19 pandemic downturn are excited about the market’s revival. However, travel and leisure stocks have not sold off yet because, for one reason or another, they have not been able to take advantage of this recovery.
In these cases, investors may have invested in these stocks on the basis of their potential for a long-term recovery. However, as the market moves, lagging stocks may need to be reexamined for profitability. In this article, we will determine three travel and leisure stocks to sell based on their revenue and cost of income.
The reason for these criteria stems from the need for hotels and resorts to remain profitable in order to continue expanding, as expansion is critical to the long-term trajectory of a hospitality brand.
Pebblebrook Hotel Trust (PEB)
We start by reviewing a wide range of areas in the hotel industry. Pebblebrook Hotel Trust (New York Stock Exchange:Peb) is a real estate investment trust (REIT) specializes in luxury hotel properties as an investment target. In theory, this seems like an incredible investment opportunity, since luxury hotels tend to retain their value over the long term due to their prime locations and reputation among the wealthy.
However, one big negative for PEB is the location of its hotels: its properties are concentrated on the US West Coast, where property taxes, real estate costs and the cost of living are skyrocketing compared to the rest of the U.S. As a result, PEB paid $32.4 million in property taxes, personal property taxes, property insurance and ground rent in the last quarter alone.
While this may not seem like much compared to the company’s total assets of $5.7 billion, it is larger than the $28 million the company lost in operating expenses.Unless states like California, Washington, and Oregon begin reducing property taxes soon, PEB will likely continue to struggle to generate profits, limiting its growth potential.
Park Hotels & Resorts (PK)
Another hotel-focused REIT: Park Hotels & Resorts (New York Stock Exchange:Penalty kick) is much more diversified than the aforementioned PEB. However, PK has also struggled to contain loan costs, with net income declining 12% year-over-year in the first quarter of 2024. This was the result of a $6 million increase in interest expenses related to hotels under receivership compared to the same period last year, despite higher revenue and operating income.
While this financial downturn is not in itself a reason to sell the REIT, it does suggest that PK may face challenges in the future as it seeks to leverage debt against its broad portfolio of assets. This is due to the fact that PK will need to take on more high-interest debt to continue growing the REIT.
While some economists expect the Federal Reserve to cut the prime rate, no rate cuts have been announced or scheduled six months into 2024. Thus, investors may be better off avoiding PK stocks until inflation truly subsides, interest rates fall, and expansion becomes profitable again.
Ryman Hospitality Properties (RHP)
Famous for its small but impressive hotel portfolio Ryman Hospitality Properties (New York Stock Exchange:Right-handed pitcher) is a REIT focused on the disappearing hotel industry. It has major assets in Colorado, Texas, Tennessee and Maryland that give it a favorable tax position, but the operating costs of these large facilities may be too high to sustainably grow RHP’s model.
That’s because RHP specializes in owning and investing in some of the largest convention center hotels in the U.S. These hotels accommodate thousands of people per night and offer hundreds of thousands of square feet of meeting space.
That’s great, but the rising costs required to maintain such a vast space are cutting into RHP’s profitability. As a result, the company reported a 30% drop in net income for the first quarter of 2024. That has led many investors to consider RHP one of the best travel and leisure stocks to sell, and the company’s value has fallen 12% year to date.
On the date of publication, the editor in charge did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
As of the publication date of this article, Viktor Zarev did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are solely those of the author, which is subject to InvestorPlace.com copyright. Publication Guidelines.