The travel and vacation industry is back in full swing. Now, many investors who bought in during the COVID-19 pandemic dip are feeling the excitement of a revived market. Yet there are still some travel and leisure stocks to sell. That’s because they have not been able to take advantage of this resurgence for one reason or another.
In these cases, investors may have invested in these stocks due to their long-term recovery potential. However, as the market moves, stocks that fall behind sometimes need a second look at their profitability. For this article, we’ll determine three travel and leisure stocks to sell based on the cost of revenue and income.
The reason for these criteria stems from the necessity for hotels and resorts to remain profitable to continue expanding since expansion is critical to the long-term trajectory of a hospitality brand.
Pebblebrook Hotel Trust (PEB)
Starting our review of the hotel industry with a broad cross-section, Pebblebrook Hotel Trust (NYSE:PEB) is a real estate investment trust (REIT) that specializes in upscale hotel properties as its investment holdings. On paper, this sounds like a phenomenal investing opportunity, as luxury hotels tend to hold their value well over time due to prime locations and reputation among the wealthy.
However, one of the major downsides for PEB has been its hotel locations. That’s because the company’s holdings focus heavily on the West Coast of the United States, which has seen property taxes, real estate expenses and cost of living skyrocket relative to the rest of America. As a result, PEB paid $32.4 million in real estate taxes, personal property taxes, property insurance and ground rent just last quarter.
While this might not seem like much compared to the company’s $5.7 billion in total assets, it is more than the $28 million the company lost due to its operating expenses. Unless states like California, Washington and Oregon begin offering property tax cuts soon, PEB will likely continue to struggle with generating profit, thus limiting its growth potential.
Park Hotels & Resorts (PK)
Another hotel-centered REIT, Park Hotels & Resorts (NYSE:PK) is far better diversified than the aforementioned PEB. Yet, PK has also struggled with keeping loan expenses in check as its net income decreased by 12% year-over-year for the first quarter of 2024. This came despite an increase in revenue and operating income and was a result of interest expense associated with hotels in receivership of $6 million more for the quarter than the year prior.
While this financial blip is not a reason to sell the REIT by itself, it does provide insight into a potentially difficult future for PK as it tries to leverage debt against its broad asset portfolio. This stems from the fact that for PK to continue growing the REIT, it needs to take on more high-interest debt.
While some economists remain hopeful the Federal Reserve will bring the prime rate down, there still have not been any cuts announced or scheduled six months into 2024. Thus, investors may want to avoid PK stock until inflation truly recedes, rates are down and expansion is once more lucrative.
Ryman Hospitality Properties (RHP)
Famous for its numerically small yet grandiose portfolio of hotels, Ryman Hospitality Properties (NYSE:RHP) represents a REIT specializing in what may be a dying breed of hotels. Its major holdings across Colorado, Texas, Tennessee and Maryland and well positioned from a tax standpoint, but the cost of operating these megastructures may soon be too much to keep RHP’s model sustainably growing.
That’s because RHP specializes in owning and investing in some of the largest convention center hotels in the United States. These hotels host thousands of people per night and facilitate meeting spaces of hundreds of thousands of square feet.
While impressive, the rising costs needed to maintain such large spaces have cut into RHP’s profitability. As a result, the company reported a 30% reduction in net income for Q1 of 2024. Thus, many investors have treated RHP as one of the travel and leisure stocks to sell, bringing its value down 12% year-to-date.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, Viktor Zarev did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.