jeudi 30 avril 2020

Marriott: A symbol of a market that's wrong

I like Marriott. These are great hotels.

I also liked Marriott as an investment. Actually, I was a shareholder, not so long ago, for a short period of time. But I sold my shares to buy something else.

However, things have changed in a world with COVID-19. Day after day, I wonder how the fuck the market has recovered so quickly and why there's suddenly a huge optimism about market recovering. Yes, the market is forward looking. But the market seems to have forgotten than many things have changed and many things won't be the same for many years.

For example, tourism.

And that's where Marriott is, to me, the symbol of a market that's wrong.

As of april 30th 2020, Marriott is selling for 25 times current earnings and 18-19 times forward earnings. Well, these numbers imply that an important growth will happen with the stock, which is impossible. And even if the growth happened, Marriott shouldn't be sold for more than 10-12 times forward earnings in my opinion.


1- Borders are closed. It's the first indicator that things are fucking abnormal and tourism is one of the worst sector to invest in;
2- Millions of people all around the world have lost their job. These people won't have any travel plans soon;
3- Social distanciation will complicate a lot of things in tourism. Perhaps that hotels won't have that much problems (except for their pools and restaurants), but a fear will remain among many people;
4- Marriott carries a big debt. Even in normal time, the debt looks like an issue. Probably a controlable issue in normal times, but a worrying issue in trouble times;

I took Marriott as an example. But I could have taken many other names as well.

In other words, the valuation of stocks related to tourism is, to me, the indicator to look at, to see if I should buy stocks. Currently, the answer is NO.

4 commentaires:

  1. Another reason why Marriott shouldn't be sold for more than 10-12 times, the disrupting effect of Air BnB. Even people on business trip are using Air BB instead of conventionnal hotel

    1. Before the crisis, Marriott's growth was good. I'm not so sure about the effect of AirBnB on middle-upper class hotels.

  2. A DCF model would reduce valuation by (6%) if revenue went to zero for a year. But some of this loss would made up with the risk free rate now basically 1%. In summary, long term valuation models see short term issues as a blip.

  3. just read an article on bloomberg about Asian people investing in whatever they can and with margin because they believe with that they can buy a house.

    I do not laugh at them. Their situation as explained in this post:

    spanish but i suppose you can translate it.

    Anyway, the reason of this wild illogical market behavior as you might have noticed was very likely to be related to access to credit for investing and low costs from brokers.