Assisted by the progress in mass vaccination, decline in new cases, and an increase in discretionary spending, hotel and airline stocks have observed a strong push in recent months including Marriott Vacations (NYSE: VAC). Interestingly, the stock has breached pre-Covid levels propelled by expectations of a strong recovery in contract sales during the latter half of the year. As a leading global vacation company, Marriott Vacations offers vacation ownership and related products by seven brands including Marriott Vacation Club, Sheraton Vacation Club, Hyatt Residence Club, under an exclusive license agreement. Despite observing a 27% sequential growth in contract sales during the first-quarter, Trefis believes that the stock price is stretched given the high current P/S multiple. We highlight the historical trends in Marriott Vacations’ revenues, earnings, and stock price in an interactive dashboard analysis, Why Has Marriott Vacations Stock Gained 147% Between 2018-End And Now?
Marriott’s financial and operational metrics during the pandemic
The company’s revenues declined by 32% (y-o-y) from $4.2 billion in 2019 to $2.8 billion in 2020 as restriction measures led to a steep decline in vacation ownership units. Notably, total contract sales plunged by 57% from $1.5 billion in 2019 to $0.7 billion in 2020. Contract sales refer to the value of all vacation units sold under different contracts for which the company has received a down payment. In Q1 2021, the company’s revenues improved by just 1.6% (q-o-q) despite a 27% jump in contract sales as the growth in other segments remained sluggish. Thus, we believe the stock’s high current valuation multiple (P/S) of 1.6 compared to 0.8 in 2019 and 0.7 in 2018 looks stretched – indicating a strong likelihood of a correction. More importantly, the $226 million of contract sales in Q1 2021 is 36% lower than observed in Q1 2019.
How has Marriott Vacations stock fared in comparison to the S&P 500?
Marriott Vacations stock declined from levels of around $123 in February 2020 (pre-crisis peak) to levels of around $48 in March 2020 (as the markets bottomed out), implying VAC stock lost 60% from its approximate pre-crisis peak. With the easing of restriction measures, the stock has more than doubled to $172, but the prevalence of multiple coronavirus strains across the world are a concern for the travel industry. Thus, the stock is likely to observe headwinds in the near term. In comparison, the S&P 500 Index first fell 34% as Covid-19 cases accelerated outside China and gained 86% after the Fed’s intervention coupled with Pfizer’s vaccine launch.
Is there a better alternative to Marriott Vacations stock? Marriott International Stock Comparison With Peers summarizes how MAR compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.