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Hyatt (NYSE:H) is trading at price-to-earnings multiples between two and three times those of its peers. There are many exciting events which pertain to the company. Most recently the company announced the opening of Hyatt Place Delray Beach in Palm Springs and Hyatt Regency Chongqing in Southwest China. These developments are associated with growth domestically and globally. Despite the rollout of exciting new properties, Hyatt has not delivered growth where it matters: earning and sales growth. Over the past five years the company has suffered a -10% compound annualized earnings growth rate while only achieving a 1.3% CAGR for sales. Moreover, even if rosy analyst estimates are correct and Hyatt's earnings growth pulls ahead of its peers, such growth would have to be sustained for too many years to validate its high price-to-earnings multiple. The high price multiples of Hyatt stock should dissuade investors from buying until its valuations descend closer to those of its industry.

Computing Future Valuations from Growth Projections

Investors should buy stocks trading at prices which make them good deals. A poor company trading at a dismal price may be an excellent trade. Hyatt shares are trading at the other extreme: it is a good company trading at fantastically enthusiastic valuations which should be avoided. Its metrics are provided with other hotels:

Ticker

Company

P/E

Earnings Growth Est.

P/S

Historical Sales Growth

H

Hyatt

56.7

24.0%

1.7

1.3%

MAR

Marriott

24.8

18.5%

1.0

0.5%

WYN

Wyndham

21.6

18.2%

1.8

2.1%

EXPE

Expedia

21.6

12.8%

2.0

9.0%

HOT

Starwood Hotels

19.3

18.5%

1.8

-1.2%

CHH

Choice Hotels

15.6

7.5%

2.8

3.4%

Do the higher growth estimates of Hyatt justify its higher valuation multiples? Future valuation multiples of Hyatt and its peer stocks were modeled by combining expected growth and trailing valuation multiples. Graphs of future price-to-earnings and price-to-sales ratios based on analyst earnings growth estimates and historical sales growth follows (click to enlarge images):

Forward PE

These projections illustrate the absurdity of current valuations for Hyatt. Analyst estimates for faster-than-economic growth are not predictive after three years or so, yet somehow investors are paying prices for Hyatt shares which imply they can see earnings at least eight years ahead.

Estimated convergence years were calculated below for Hyatt and its industry peers:

Hyatt Competitor

P/E Equivalence

P/S Equivalence

Marriott

2029

2075

Wyndham

2031

2017

Expedia

2021

2013

Starwood Hotels

2034

2008

Choice Hotels

2020

2034

The projected crossover dates span well into the distant future for the price-to-earnings multiple, demonstrating how Hyatt shares are overpriced. Investors should avoid Hyatt at current prices.

Instead, they should consider other companies on this list as more reasonable alternatives which can be justified without extending forecasts beyond a 3-year horizon. In particular, Expedia offers an entirely different, less capital intensive business model in the lodging space while trading at better valuations. Marriot, though attractive in these plots, has a negative book value for equity and should be regarded as speculative since the returns to negative equity have historically lagged stocks with positive accounting values of equity. All-in-all, Expedia is a better lodging industry investment.

Please read the article disclaimer.

Source: Wait To Book Hyatt Shares At Lower Valuations