Top Hotel Stocks

The hotel industry is focused on the provision of short-term lodging, including hotels and motels, as well as accommodation-related services. It’s one segment within the broader hospitality (or leisure) industry. The hotel industry is split into two main categories of companies: C-corporation hotels such as Marriott International Inc. and Hilton Worldwide Holdings Inc.; and hotel real estate investment trusts (REITs) such as DiamondRock Hospitality Co. and Park Hotels & Resorts Inc.

C-corporation hotels are generally engaged in hotel management, branding and marketing, and sometimes franchise licensing. They often own little real estate, and their legal structure requires them to pay corporate taxes on dividends. These hotel stocks are best represented by the S&P 1500 Hotels, Resorts, and Cruise Lines Sub-Industry Index, which had a total return over the past year of -17.9%, as of Sept. 16, 2022.

Hotel REITs, on the other hand, are companies that focus more on the acquisition, ownership, and operation of hotel real estate. Some REITs even manage the hotels that they own. They are legally structured in a way that exempts them from paying taxes on distributed dividends, but they must distribute 90% of their taxable income to shareholders to be eligible as a REIT. These hotel REITs are best represented by the S&P 1500 Hotel & Resort REITs Sub-Industry Index, which had a total return of -6.7% over the past year.

Hotel stocks have underperformed compared to the broader equity market, as represented by the Russell 1000 Index, which provided a total return of -13.8% over the past 12 months, as of Sept. 16, 2022. Hotel REITs as a group outperformed the broader market over the same time period. All statistics in the tables below are as of Sept. 16, 2022.

The hotel industry suffered from a severe reduction in travel during the COVID-19 pandemic. But the rollout of vaccines and easing of restrictions is sparking rising demand from leisure travelers, with the the global leisure travel industry projected to be valued at $6.4 trillion by 2027. By contrast, the pandemic may have permanently impacted business travel, with the future of that industry uncertain.

In the first half of this story, we look at the top three hotel stocks with the best value, the fastest growth, and the best performance. In the second half, we examine the top three hotel REITs with the best value, the fastest growth, and the most momentum. We use the price-to-earnings ratio (P/E) to determine the best value stocks and REITs, sales and/or earnings per share (EPS) growth to determine the fastest growth stocks and REITs, and total return to determine the stocks and REITs with the best performance or momentum.

Best Value Hotel Stocks

These are the hotel stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

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• Sonder Holdings Inc.: Sonder is hospitality company that provides accommodations including rooms, suites, and apartments across 10 countries. On Aug. 10, the company announced earnings results for Q2 2022. Net losses narrowed year-over-year (YOY) as revenue more than doubled. The company said that growth was fueled by factors including improved revenue management and merchandising.
• Wyndham Hotels & Resorts Inc.: Wyndham Hotels & Resorts owns and operates a chain of hotels and resorts. It provides rooms, amenities, resorts, meeting and event space, wedding venues, and other services worldwide.
• Choice Hotels International Inc.: Choice Hotels International is a hotel franchising company. Its properties range from limited-service to full-service hotels within the upscale, midscale, extended-stay, and economy segments. On Sept. 20, Choice Hotels announced a July 29 agreement with real estate investment firm ServiceStar Capital Management. The agreement provides for the development of 21 new Everhome Suites hotels in Colorado, Arizona, Utah, Nevada and Florida. It is the company's largest-ever investment in the brand.
  

Fastest Growing Hotel Stocks

These are the top hotel stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and most recent quarterly YOY EPS growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

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• Hilton Worldwide Holdings Inc.: Hilton Worldwide Holdings is a global hospitality company. It owns and manages hotels, resorts, and timeshare properties throughout the world. Hilton announced earnings results on July 27 for Q2 2022. Net income nearly tripled on solid revenue gains YOY. The company saw substantial revenue growth across all of its business categories.
• Sonder Holdings Inc.: See company description above. Sonder does not have an EPS growth figure in the table above because it had negative EPS for the quarter, making a growth calculation impossible.
• Hyatt Hotels Corp.: Hyatt Hotels is a multinational hospitality company that develops and manages branded hotels, resorts, and residential and vacation ownership properties. Hyatt Hotels issued earnings results on Aug. 9 for Q2 2022. The company reported net income of $206 million compared with net loss for the prior-year quarter. Total fee revenue more than doubled YOY, driven by record leisure travel revenue and improving group and business demand. Hyatt does not have an EPS growth figure in the table above because its EPS went from negative to positive over the period in question.

Hotel Stocks with the Best Performance

These are the hotel stocks that had the best returns or smallest declines in total return over the past 12 months out of the companies we looked at.

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• Hyatt Hotels Corp.: See above for company description.
• Marriott International Inc.: Marriott International is a global operator, franchisor, and licensor of of hotels under brand names including Westin, W Hotels, Sheraton, and Marriott. It also licenses vacation ownership resorts.
• Hilton Worldwide Holdings Inc.: See above for company description.

Best Value Hotel REITs

These are the hotel REITs with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

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• Sunstone Hotel Investors Inc.: Sunstone Hotel Investors is a lodging REIT that owns primarily upscale hotels. Its hotels operate under various nationally recognized brand names. The company provided an operations update in mid-September. Sunstone said occupancy across its 13 of its hotels was down 1,450 basis points in Q3 2022 compared to the same period in 2019, while average daily rate for the same group of hotels was up 16.9% compared to the same period in 2019.
• Host Hotels & Resorts Inc.: Host Hotels & Resorts is a lodging REIT. It is focused on acquiring and developing luxury and upper upscale hotels, which are primarily located in the U.S.
• Apple Hospitality REIT Inc.: Apple Hospitality REIT owns a large, diversified portfolio of upscale hotels in the U.S., focusing on leading brands such as Marriott, Hilton, and Hyatt. On Sept. 20, the company announced its October 2022 regular monthly cash distribution of $0.07 per common share. The distribution is payable on Oct. 17 to shareholders as of Oct. 4, 2022.
  

Fastest Growing Hotel REITs

These are the hotel REITs with the highest YOY sales growth for the most recent quarter. Rising sales can help investors to both identify companies that are able to grow revenue through organic or new ways and find growing companies that have not yet reached profitability. In addition, accounting factors that may not reflect the overall strength of the business can significantly influence earnings per share. However, sales growth can also be potentially misleading about the strength of a business, because growing sales on money-losing businesses can be harmful if the company has no plan to reach profitability.

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• Ryman Hospitality Properties Inc.: Ryman Hospitality Properties is a lodging and hospitality REIT specializing in upscale convention center resorts as well as country music entertainment experiences. Ryman issued its Q2 2022 earnings release on Aug. 1. Net income available to common shareholders was $50.3 million, compared to net loss for the prior-year quarter. Revenue nearly tripled YOY. Strong leisure travel demand and improved group travel and hotel bookings production and lead volumes helped to fuel growth.
  
• Pebblebrook Hotel Trust: Pebblebrook Hotel Trust is a REIT focused on acquiring and investing in upper upscale, full-service hotel and resort properties. On Sept. 15, Pebblebrook declared a quarterly cash dividend of $0.01 per common share of beneficial interest, as well as dividends for four series of cumulative redeemable preferred shares. All dividends are payable Oct. 17 to shareholders as of Sept. 30, 2022.
• Diamondrock Hospitality Co.: Diamondrock Hospitality is a self-advised hotel REIT which owns 34 premium quality hotels across a diversified group of leisure destinations. Its hotel investments operate in both leading global brands and as independent boutique hotels.

Hotel REITs with the Most Momentum

These are the hotel REITs that had the highest total return over the last 12 months

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• Host Hotels & Resorts Inc.: See company description above.
• Apple Hospitality REIT Inc.: See company description above.
• Chatham Lodging Trust: Chatham Lodging Trust is a hotel REIT which invests in upscale, extended-stay hotels and premium-branded hotels. It owns 39 properties across 16 states and Washington, D.C. Chatham announced on Sept. 1 a preferred share dividend of $0.41406 per share. The dividend is payable Oct. 17 to shareholders as of Sept. 30, 2022.

The Impact of COVID-19 on Hotel Stocks

Companies owning, operating, or investing in hotels saw significant disruptions to their business throughout the early portion of the COVID-19 pandemic. In a span of months, nearly five million hospitality and leisure jobs were lost across the U.S., and occupancy rates in the last months of 2020 fell to below 20% in many cases. As of late 2022, many businesses across the hospitality industry have largely recovered, with pent-up demand and other factors contributing to rising room prices in some cases.

To be sure, the recovery has not been entirely even, and the pandemic will likely continue to impact the hotel industry for years to come. For example, certain travel destinations have seen stronger demand than others, with the entertainment and gaming city Las Vegas recovering than New York City. Also, business travel has remained depressed amid the recovery as more employees work from home.

Risks of Investing in Hotel Stocks

Investing in companies that own and operates hotels comes with a number of risks, some of them potentially significant. While some of the biggest hotel companies have thousands of locations around the world and benefit from global brand recognition, most others hotel businesses are less stable. Here are some of the risks to be aware of when considering an investment in hotel stocks:

1. Property: Property-related risk is a key factor to consider when making any investment in real estate, a REIT, or a company that owns or operates real estate. Hotels are subject to wear and tear, damage from guests, construction and renovation issues, and a host of other liabilities. These property-related risks exist during development as well as operation of a hotel.
2. Operation: Operational risks are associated with the day-to-day business and management of the hotel. A hotel must be able to maintain high levels of cash flow to continue to function properly. But factors such as poor planning and mismanagement can jeopardize this.
3. Market Factors: External factors also create significant risk within the hotel industry. The COVID-19 pandemic and its devastating impact on travel and hotel use is a notable example. Other factors include macroeconomic conditions such as inflation or a recession, political or regulatory changes, and competition from newer hospitality companies such as Airbnb Inc. (ABNB).

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