Earnings

Choosing Between Hilton Grand Vacations Inc. (HGV) and Playa Hotels & Resorts N.V. (PLYA)

Hilton Grand Vacations Inc. (NYSE:HGV) shares are up more than 55.88% this year and recently increased 0.25% or $0.1 to settle at $40.53. Playa Hotels & Resorts N.V. (NASDAQ:PLYA), on the other hand, is up 2.54% year to date as of 11/21/2017. It currently trades at $10.92 and has returned -0.82% during the past week.

Hilton Grand Vacations Inc. (NYSE:HGV) and Playa Hotels & Resorts N.V. (NASDAQ:PLYA) are the two most active stocks in the Resorts & Casinos industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. HGV’s ROI is 14.70% while PLYA has a ROI of 6.00%. The interpretation is that HGV’s business generates a higher return on investment than PLYA’s.



Cash Flow 

Earnings don’t always accurately reflect the amount of cash that a company brings in. HGV’s free cash flow (“FCF”) per share for the trailing twelve months was +1.12. Comparatively, PLYA’s free cash flow per share was +0.36. On a percent-of-sales basis, HGV’s free cash flow was 7.01% while PLYA converted 0.01% of its revenues into cash flow. This means that, for a given level of sales, HGV is able to generate more free cash flow for investors.

Financial Risk




HGV’s debt-to-equity ratio is 3.29 versus a D/E of 1.44 for PLYA. HGV is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

HGV trades at a forward P/E of 19.12, a P/B of 12.06, and a P/S of 2.40, compared to a forward P/E of 20.60, a P/B of 1.97, and a P/S of 1.99 for PLYA. HGV is the cheaper of the two stocks on an earnings basis but is expensive in terms of P/B and P/S ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

Just because a stock is cheaper doesn’t mean there’s more value to be had. In order to assess value we need to compare the current price to where it’s likely to trade in the future. HGV is currently priced at a -10.92% to its one-year price target of 45.50. Comparatively, PLYA is -23.37% relative to its price target of 14.25. This suggests that PLYA is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 1.80 for HGV and 2.00 for PLYA, which implies that analysts are more bullish on the outlook for PLYA.

Insider Activity and Investor Sentiment

Short interest is another tool that analysts use to gauge investor sentiment. It represents the percentage of a stock’s tradable shares that are being shorted. HGV has a short ratio of 2.25 compared to a short interest of 1.24 for PLYA. This implies that the market is currently less bearish on the outlook for PLYA.

Summary

Hilton Grand Vacations Inc. (NYSE:HGV) beats Playa Hotels & Resorts N.V. (NASDAQ:PLYA) on a total of 6 of the 14 factors compared between the two stocks. HGV generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate and higher liquidity. Finally, LVS has better sentiment signals based on short interest.

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