Playa Hotels & Resorts: Long-Term Outlook Encouraging

Jul. 11, 2022 9:39 AM ETPlaya Hotels & Resorts N.V. (PLYA)1 Comment
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Discount Fountain
4.19K Followers

Summary

  • Playa Hotels & Resorts has shown encouraging RevPAR growth across its portfolio.
  • A rising quick ratio means the company is better placed to handle a potential slowdown in revenue growth.
  • I take a long-term bullish view of the stock.

Tropical beach in caribbean sea, Saona island, Dominican Republic

mrtekmekci/iStock via Getty Images

Investment Thesis: Strong growth in RevPAR as well as a rising quick ratio indicates that Playa Hotels & Resorts (NASDAQ:PLYA) is seeing an encouraging recovery following the COVID-19 pandemic. I take a long-term bullish view on the stock.

In a previous article, I made the argument that Playa Hotels & Resorts could see upside going forward as a result of a recovery in RevPAR (revenue per available room) and ADR (the average daily rate) across the company's major geographies. Moreover, with property prices rising in the Dominican Republic, I also made the argument that rising prices would provide a buffer against lower than expected resort bookings.

With that being said, inflationary concerns and bearish market sentiment has coincided with a significant drop in the stock:

PLYA chart

investing.com

The purpose of this article is to analyse whether the recent sell-off was overdone and if Playa Hotels & Resorts could reasonably see upside from here.

Portfolio Performance

Overall, Playa Hotels & Resorts saw a strong rebound in ADR and RevPAR from 2020 through to last year.

To get a better overview of revenue performance across the different geographies in the company's portfolio, I decided to collate quarterly data on ADR and RevPAR for all quarters in 2020 and 2021. The ADR and RevPAR figures were then averaged by year in order to determine performance across each geography in the portfolio.

The calculations were performed using SQL, and these can be found along with the original quarterly figures here.

2020

Portfolio ADR RevPAR RevPAR (% by portfolio)
Jamaica 315.39 128.55 31.10%
Yucatan Peninsula 292.27 120.73 29.21%
Pacific Coast 395.25 102.31 24.75%
Dominican Republic 239.74 61.79 14.95%

Source: Calculations made by author.

2021

Portfolio ADR RevPAR RevPAR (% by portfolio)
Yucatan Peninsula 318.49 168.23 29.48%
Pacific Coast 344.01 163.14 28.58%
Jamaica 300.86 129.1 22.62%
Dominican Republic 268.1 110.26 19.32%

Source: Calculations made by author.

When looking at average RevPAR by year - we can see that the Yucatan Peninsula has become the largest revenue generator in the company's portfolio, and this accounted for just under 30% of overall revenue in 2021.

However, what is also noteworthy is that the Jamaica region saw average RevPAR for 2020 and 2021 at virtually identical levels and Jamaica was the top revenue earner for the company in 2020.

With that being said, the Yucatan Peninsula and Dominican Republic saw growth in both RevPAR and ADR, while the Pacific Coast and Jamaica saw a drop in ADR despite RevPAR growing by 59% for the former and remaining flat for the latter.

2022

Portfolio ADR RevPAR RevPAR (% by portfolio)
Yucatan Peninsula 429.45 308.75 27.02%
Pacific Coast 454.61 302.89 26.50%
Jamaica 415.11 280.54 24.55%
Dominican Republic 324.26 250.68 21.93%

Source: Calculations made by author.

While only the first quarter of data for 2022 is available, we seem to be seeing a continuation of this trend so far, with Yucatan Peninsula and the Pacific Coast remaining the top two by revenue along with higher ADR across these portfolios.

What is particularly noteworthy is that both the Yucatan Peninsula and the Dominican Republic were able to increase average price charged per day to customers while also increasing revenue. This might suggest that customers who book across these portfolios are less price sensitive and even if inflation does somewhat lower the recovery for travel demand this summer - I take the view that revenue across these geographies could increase further in spite of rising prices.

Looking Forward

The rebound in revenue to date has been encouraging.

Going forward - it is unclear to what extent inflation can be expected to dampen demand from here.

In spite of the rebound in revenue growth we saw last year, the stock could see some downside if growth this year comes lower than expected due to inflationary concerns.

In this regard, investors will likely be paying more attention to the company's cash position in order to ensure that it can withstand a potential drop in revenue growth.

To gauge this, I decided to calculate the quick ratio for the periods Q1 2021 and Q1 2022. This was calculated as cash less inventories, over total liabilities less deferred tax liabilities.

Items March 2021 March 2022
Cash and cash equivalents 200427 299802
Inventories 14063 18801
Total liabilities 1430177 1415601
Deferred tax liabilities 64161 70470
Quick ratio 13.64% 20.89%

Source: Figures sourced from First Quarter 2021 and First Quarter 2022 Financial Reports. Quick ratio calculated by author.

With the quick ratio having risen from 13% last year to just under 21% in the most recent quarter, Playa Hotels & Resorts has been showing evidence of an improving cash position.

From this standpoint, I take the view that the company is in a good position to withstand a potential slowing of revenue growth.

Conclusion

To conclude, revenue growth across the company's portfolios has been encouraging, with Playa Hotels & Resorts also showing a strengthening financial position.

While the stock could be at risk of short-term downside if revenue growth comes in below expectations due to inflationary concerns - I take a longer-term bullish view on the stock.

This article was written by

Discount Fountain profile picture
4.19K Followers
I am an independent investor with an interest in analyzing stocks across the consumer, finance, telecommunication, and travel sectors. As a data scientist, I also have a great interest in using data tools to better understand a company's financial position.Some examples include:- Aggregating quarterly churn and ARPU data for Deutsche Telekom (DTEGY) and analysing trends over time using SQL: https://seekingalpha.com/article/4516805-deutsche-telekom-growth-potential-remains- Building a Monte Carlo simulation in Python to analyze loss ratios for Zurich Insurance Group (ZURVY): https://seekingalpha.com/article/4459821-zurich-insurance-stock-solid-insurance-company-still-faces-risks- Examining ADR and RevPAR trends by brand for Hilton Worldwide Holdings (HLT) using SQL: https://seekingalpha.com/article/4517248-hilton-worldwide-holdings-an-analysis-of-adr-and-revpar-trendsDisclaimer: All of the author's articles are written on an "as is" basis and without warranty. They represent the author's opinion only and in no way constitute professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions. The author disclaims all liability for any actions taken based on the information contained in any articles published.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is written on an "as is" basis and without warranty. The content represents my opinion only and in no way constitutes professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions. The author disclaims all liability for any actions taken based on the information contained in this article.

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