Laughing Water Capital, an investment management company, released its fourth-quarter 2022 investor letter. A copy of the same can be downloaded here. In the fourth quarter, investment in Class A shares of the fund returned 4.0%, net of all fees and expenses, compared to 7.6% and 6.2% returns for the SP500TR and R2000, respectively. For 2022 the fund returned 31.7% compared to -18.1% and -20.4% returns for the SP500TR and R2000 respectively. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.
Laughing Water Capital highlighted stocks like Hilton Grand Vacations Inc. (NYSE:HGV) in the Q4 2022 investor letter. Headquartered in Orlando, Florida, Hilton Grand Vacations Inc. (NYSE:HGV) is a timeshare company that manages vacation ownership resorts. On February 15, 2023, Hilton Grand Vacations Inc. (NYSE:HGV) stock closed at $48.47 per share. One-month return of Hilton Grand Vacations Inc. (NYSE:HGV) was 9.49%, and its shares lost 6.81% of their value over the last 52 weeks. Hilton Grand Vacations Inc. (NYSE:HGV) has a market capitalization of $5.577 billion.
Laughing Water Capital made the following comment about Hilton Grand Vacations Inc. (NYSE:HGV) in its Q4 2022 investor letter:
“Hilton Grand Vacations Inc. (NYSE:HGV) – HGV combines the impossible to replicate Hilton brand with a nearly impossible to replicate portfolio of vacation properties into the Hilton time share business. HGV has 25+ years of cohort data that suggests that for every $1 a customer spends, they will spend an additional $1.10 as their tenure matures. Thus, the maturation of the existing owner base alone should drive earnings power higher with time. However, the real prize will come from the recent acquisition of Diamond Resorts. In brief, I expect that layering the Hilton brand and best practices over the Diamond business will greatly improve earnings.
Perception will change as the market appreciates the benefits that will come from the Diamond merger and realizes that with ~70% of revenue either recurring or highly predictable and 30% of revenue tied to a flexible cost structure, this business is much more resilient than it appears.
If I am correct on how I think earnings power and perception will evolve in the years to come, HGV currently trades at ~6x normalized FCF looking out 2 years. This will likely prove conservative as the share count is likely to shrink as the Company continues to aggressively repurchase their own shares. I believe the multiple can easily double from 6x, and mid-teens is not out of reach as the market comes to appreciate the resilience of the business. Further upside is likely beyond the next 2 years as the Company finalizes the integration of Diamond Resorts, and sells through a $12B inventory position. Ultimately, I believe there is a path toward 300-400% upside in the not-too-distant future.”
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Hilton Grand Vacations Inc. (NYSE:HGV) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 29 hedge fund portfolios held Hilton Grand Vacations Inc. (NYSE:HGV) at the end of the third quarter which was 26 in the previous quarter
We discussed Hilton Grand Vacations Inc. (NYSE:HGV) in another article and shared the list of most undervalued travel stocks to buy according to hedge funds. In addition, please check out our hedge fund investor letters Q4 2022 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
