– According to GF value
The portfolio of Xenia Hotels & Resorts (NYSE: XHR, 30 year financial data) seems to be clearly overrated according to the GuruFocus value calculation. The GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should be traded. The calculation is based on the historical multiples at which the share traded, past business growth and analyst estimates of future business development. If a stock’s price is well above the GF value line, it is overvalued and its future return is likely to be poor. On the other hand, if it is well below the GF value line, its future return will likely be higher. With a current price of USD 19.91 per share and a market capitalization of USD 2.3 billion, the Xenia Hotels & Resorts share appears to be significantly overvalued. The GF value for Xenia Hotels & Resorts is shown in the table below.
Xenia Hotels & Resorts shares are expected to be significantly overvalued
With Xenia Hotels & Resorts being significantly overvalued, the long-term return on its stocks is likely to be well below future business growth.
Shortcut: These companies can deliver higher future returns with reduced risk.
Investing in companies with little financial strength carries a higher risk of permanent loss of capital. Therefore, it is important to carefully consider a company’s financial strength before deciding whether to buy stocks. Looking at the cash-to-debt ratio and interest coverage is a good starting point for understanding a company’s financial strength. Xenia Hotels & Resorts has a cash-to-debt ratio of 0.28, which is better than 84% of companies in the REIT industry. GuruFocus rates the financial strength of Xenia Hotels & Resorts as 4 out of 10, which indicates that the financial strength of Xenia Hotels & Resorts is poor. This is Xenia Hotels & Resorts’ debt and money over the past few years:
The story goes on
Xenia Hotels & Resorts shares are expected to be significantly overvalued
There is less risk of investing in profitable companies, especially companies that have consistent profitability over the long term. A company with high profit margins is also usually a safer investment than one with low profit margins. Xenia Hotels & Resorts has been profitable 6 over the past 10 years. For the past twelve months, the company had sales of $ 369.8 million and a loss of $ 1.44 per share. The operating margin is -57.24% and is thus below the bottom 10% of companies in the REIT industry. Overall, GuruFocus rates the profitability of Xenia Hotels & Resorts with 4 out of 10 points, which indicates poor profitability. This is the turnover and the net income of Xenia Hotels & Resorts in the last few years:
Xenia Hotels & Resorts shares are expected to be significantly overvalued
Growth is probably the most important factor in evaluating a company. Research from GuruFocus has shown that growth is closely correlated to a company’s long-term stock performance. A faster growing company creates more value for shareholders, especially when the growth is profitable. Average annual sales growth of 3 years by Xenia Hotels & Resorts is -28.3%, which is among the bottom 10% of companies in the REITs industry. The average 3-year EBITDA growth rate is -57.1%, which is below the 10% of companies in the REIT industry.
Another way to evaluate a company’s profitability is to compare its return on investment (ROIC) to its weighted cost of capital (WACC). Return on Invested Capital (ROIC) measures how well a company generates cash flow in relation to the capital it has invested in its business. The weighted average cost of capital (WACC) is the average rate a company has to pay to all security holders to fund its assets. When the ROIC is higher than the WACC, it means the company is creating value for shareholders. Over the past 12 months, Xenia Hotels & Resorts’ ROIC was -6.48 while the WACC was 9.34. Xenia Hotels & Resorts’ historical comparison of ROIC and WACC is shown below:
Xenia Hotels & Resorts shares are expected to be significantly overvalued
Finally, the share of Xenia Hotels & Resorts (NYSE: XHR, 30-year financial data) is viewed as significantly overrated. The company’s financial situation is poor and profitability is poor. The growth is in the bottom 10% of companies in the REIT industry. To find out more about the Xenia Hotels & Resorts share, view the 30-year financial data here.
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This article first appeared on GuruFocus.
