We recently compiled a list of the 10 Most Undervalued Hotel Stocks To Invest In Now. In this article, we are going to take a look at where DiamondRock Hospitality Company (NYSE:DRH) stands against the other hotel stocks.
Exploring the Hotel Market: Trends and Highlights
The hotel market is experiencing a significant transformation as it rebounds from the impacts of the COVID-19 pandemic. According to a report by Zion Market Research, the global hotel market was valued at $1.37 trillion in 2023. The market is expected to expand at a compound annual growth rate (CAGR) of 9.14% during 2024-2032 to reach a value of $2.99 trillion by the end of the forecast period. This growth is driven by increased travel demand, higher disposable incomes, and a resurgence in both leisure and business travel.
SiteMinder’s Hotel Booking Trends 2023 report reveals significant changes in the hospitality industry as it rebounds from the pandemic. The report analyzes bookings from travelers in 20 of the world’s most established destinations. According to the report, in 2023, international check-ins increased in all but one market compared to the previous year. Malaysia, New Zealand, and Taiwan experienced the biggest jumps due to their border reopenings in 2022.
In 2023, hotels raised their prices while still achieving record check-ins. The average daily rate (ADR) globally reached $192, reflecting an 11% increase from 2022 and a 38% rise compared to 2019. Italy saw the largest increase, with its ADR rising by $42 or 20% year-on-year. This indicates that hotels are responding to strong pent-up demand by adjusting their pricing strategies.
Despite the increase in prices, travelers are booking shorter stays. According to the report, 81% of hotel stays globally were for just one or two nights. Only a small fraction of stays were longer than three nights, highlighting a shift in traveler preferences.
Investor Sentiment in 2024
Overall, hotel investors are feeling positive about the market for 2024. In the US, many investors are eager to increase their investments in hotels.
CBRE Hotels Research conducted a Global Hotel Investor Intentions Survey in early 2024 to evaluate the hotel investment landscape. The results show that investor sentiment in the US is strong, with 50% of respondents planning to increase their allocation to hotel acquisitions this year. About 35% expect their acquisition activities to stay the same as in 2023, while less than 16% anticipate a decrease.
Despite high interest rates, many investors are looking to buy hotels. Over 70% of those surveyed said they are focusing on value-added and opportunistic investments. These types of acquisitions allow investors to improve properties by adding rooms, redesigning spaces, or enhancing amenities to boost returns and long-term value.
Our Methodology
To compile our list of the 10 most undervalued hotel stocks to invest in now, we used the Finviz and Yahoo stock screeners to find the largest hotel companies. We also reviewed our own rankings and consulted various online resources to compile a list of the largest publicly traded hotel companies, the most popular hotel stocks, and REITs.
From an initial pool of over 30 hotel stocks, we focused on those trading at under 20 times their forward earnings as of November 11. Then, we selected the stocks that analysts believe possess the greatest potential for growth. Finally, we ranked the 10 most undervalued hotel stocks to invest in now based on their average price target upside potential according to analysts as of November 11, 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Aerial view of a luxury hotel, representing the company’s premium quality offerings.
DiamondRock Hospitality Company (NYSE:DRH)
Forward P/E: 18.15
Analysts’ Upside Potential: 7.93%
DiamondRock Hospitality Company (NYSE:DRH) is a real estate investment trust (REIT) that ranks among the most undervalued hotel stocks to invest in. The company owns a portfolio of 36 premium hotels and resorts, totaling over 9,700 rooms across key gateway cities and destination resorts throughout the United States.
In the third quarter of 2024, DiamondRock Hospitality Company (NYSE:DRH) reported a net income of $26.6 million, or $0.11 per diluted share. Comparable revenues reached $285.1 million, marking a 2.5% increase from the same period in 2023. The company’s Comparable RevPAR (Revenue per Available Room) also increased by 2.8%, reaching $214.44.
While the DiamondRock Hospitality Company’s (NYSE:DRH) hotels in South Florida, New Orleans, and Charleston were unharmed by Hurricane Helene in September, the overall RevPAR growth was impacted by business interruptions from the storm.
DiamondRock Hospitality Company (NYSE:DRH) plans to invest approximately $85 million in capital improvements throughout 2024, having already spent about $58.4 million in the first nine months of the year. Key projects include the rebranding of Hilton Burlington to Hotel Champlain Burlington, a Curio Collection by Hilton in July 2024. During the second quarter of 2024, the company completed a comprehensive renovation at the Westin San Diego Bayview. In the third quarter, the company completed a renovation at the Bourbon Orleans Hotel.
Additionally, on November 1, 2024, DiamondRock Hospitality Company (NYSE:DRH) began repositioning Orchards Inn into Cliffs at L’Auberge. This project will connect the hotel with the nearby L’Auberge de Sedona and will feature a new pool linking both properties. The renovations will include updates to the guest rooms and the creation of a fresh arrival experience, along with new outdoor event spaces. The company anticipates completing this project in 2025.
With a strong financial performance and ongoing investments, DiamondRock Hospitality Company (NYSE:DRH) is well-positioned for future growth. It ranks 8th on our list of the undervalued stocks in the hotel industry.
Overall, DRH ranks 8th on our list of the most undervalued hotel stocks to invest in now. While we acknowledge the potential of DRH as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DRH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
