The stock of Xenia Hotels & Resorts (NYSE:XHR, 30-year Financials) shows every sign of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $19.66 per share and the market cap of $2.2 billion, Xenia Hotels & Resorts stock shows every sign of being significantly overvalued. GF Value for Xenia Hotels & Resorts is shown in the chart below.
Because Xenia Hotels & Resorts is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Xenia Hotels & Resorts has a cash-to-debt ratio of 0.26, which is better than 83% of the companies in REITs industry. The overall financial strength of Xenia Hotels & Resorts is 3 out of 10, which indicates that the financial strength of Xenia Hotels & Resorts is poor. This is the debt and cash of Xenia Hotels & Resorts over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Xenia Hotels & Resorts has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $242.3 million and loss of $1.62 a share. Its operating margin of -97.73% in the bottom 10% of the companies in REITs industry. Overall, GuruFocus ranks Xenia Hotels & Resorts's profitability as poor. This is the revenue and net income of Xenia Hotels & Resorts over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Xenia Hotels & Resorts's 3-year average revenue growth rate is in the bottom 10% of the companies in REITs industry. Xenia Hotels & Resorts's 3-year average EBITDA growth rate is -57.1%, which ranks in the bottom 10% of the companies in REITs industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Xenia Hotels & Resorts's return on invested capital is -7.85, and its cost of capital is 8.99. The historical ROIC vs WACC comparison of Xenia Hotels & Resorts is shown below:
In short, the stock of Xenia Hotels & Resorts (NYSE:XHR, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks in the bottom 10% of the companies in REITs industry. To learn more about Xenia Hotels & Resorts stock, you can check out its 30-year Financials here.
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