Marriott has been treading water for the past six months, holding steady at $329.77. The stock also fell short of the S&P 500’s 13.6% gain during that period.
Is now the time to buy Marriott, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Marriott Will Underperform?
We’re sitting this one out for now. Here are three reasons why there are better opportunities than MAR, plus one stock we’d rather own.
1. Weak RevPAR Growth Points to Soft Demand
In addition to reported revenue, RevPAR (revenue per available room) is a useful data point for analyzing Consumer Discretionary - Travel and Vacation Providers companies. This metric accounts for daily rates and occupancy levels, painting a holistic picture of Marriott’s demand characteristics.
Marriott’s RevPAR came in at $150.10 in the latest quarter, and over the last two years, its year-on-year growth averaged 1.7%. This performance was underwhelming and suggests it might have to invest in new amenities such as restaurants and bars to attract customers - this isn’t ideal because expansions can complicate operations and be quite expensive (i.e., renovations and increased overhead). 
2. Cash Flow Margin Set to Decline
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Over the next year, analysts predict Marriott’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 11.6% for the last 12 months will decrease to 11.1%.
3. New Investments Aren’t Moving the Needle
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Unfortunately, Marriott’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of Marriott, we’ll be cheering from the sidelines. With its shares underperforming the market lately, the stock trades at 27.3× forward P/E (or $329.77 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at a top digital advertising platform riding the creator economy.
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