Over the past six months, Wyndham’s shares (currently trading at $80.34) have posted a disappointing 18.4% loss, well below the S&P 500’s 1.7% gain. This may have investors wondering how to approach the situation.
Is now the time to buy Wyndham, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Wyndham Not Exciting?
Even with the cheaper entry price, we're swiping left on Wyndham for now. Here are three reasons why we avoid WH and a stock we'd rather own.
1. RevPAR Hits a Plateau
Investors interested in Travel and Vacation Providers companies should track RevPAR (revenue per available room) in addition to reported revenue. This metric accounts for daily rates and occupancy levels, painting a holistic picture of Wyndham’s demand characteristics.
Over the last two years, Wyndham failed to grow its RevPAR, which came in at $36.13 in the latest quarter. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Wyndham 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. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Wyndham’s revenue to rise by 4.2%. While this projection suggests its newer products and services will catalyze better top-line performance, it is still below average for the sector.
3. 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 9.2%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
Wyndham’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 16.2× forward P/E (or $80.34 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at the most entrenched endpoint security platform on the market.
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