Rising recession fears due to aggressive interest rate hikes have resulted in stock market turmoil. Several economists predict that the economy will enter a recession in 2023. This is resulting in a shift in consumer spending away from entertainment, leisure, and travel and toward basic necessities.
Therefore, fundamentally weak travel stocks Sonder Holdings Inc. (SOND) and Hall of Fame Resort & Entertainment Company (HOFV) might be best avoided now.
Last year, the travel industry made a healthy rebound, fueled by pent-up travel demand and a strong desire among passengers to make up for lost chances. According to the US Travel Association, total travel spending in the United States in December 2022 was $97 billion, up 3% from 2019 and 7% from 2021.
Patrick Scholes, Truist Securities managing director, said, “Investors are increasingly becoming more comfortable that we are not going to see a travel pullback in the first half of the year, but the back half of the year remains to be seen.”
However, with rising inflation, travel is likely among the most severely impacted segments, as customers prefer to reduce discretionary spending when their purchasing power falls. According to a study, 99% of the approximately 140 industry professionals believe that inflation will cause visitors to change their vacation plans.
So, let’s delve deeper into the stocks mentioned above:
Sonder Holdings Inc. (SOND)
SOND engages in the hospitality business. It operates and manages properties comprising 1-, 2-, and 3+ bedroom; and studio apartments, as well as 1-bedroom hotel rooms for leisure travelers and families, digital nomads, and business travelers in North America, Europe, and the Middle East.
In terms of forward EV/Sales, SOND’s 2.31x is 110.4% higher than the 1.10x industry average.
SOND’s trailing-12-month net income margin is negative 35.95% compared to the 4.57% industry average. Likewise, its trailing-12-month EBIT margin is negative 61.29% compared to the 7.70% industry average.
SOND’s current liabilities came in at $1.77 billion for the period that ended December 31, 2022, compared to $1.53 billion for the period that ended December 31, 2021. Also, its long-term debt, net of current portion, came in at $2.72 billion, compared to $1.20 billion for the same period.
Analysts expect SOND’s EPS for the quarter ending June 30, 2023, to be negative $0.13 and remain negative for the year 2023. It missed the EPS estimates in all four trailing quarters. Over the past year, the stock has lost 85% to close the last trading session at $0.72.
SOND’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is also rated a D in Stability, Growth, and Sentiment. In the Travel - Hotels/Resorts industry, it is ranked #21 out of 22 stocks. Click here to see SOND’s rating for Value, Momentum, and Quality.
Hall of Fame Resort & Entertainment Company (HOFV)
HOFV is a leading sport, entertainment, and media enterprise leveraging the popularity of professional football and players in partnership with the Pro Football Hall of Fame. It also offers live entertainment and events, including top performers, sporting events, and festival programming.
In terms of forward EV/Sales, HOFV’s 12.51x is significantly higher than the 1.10x industry average. In addition, it’s forward Price/Sales of 2.80x is 235.7% higher than the industry average of 0.83x.
HOFV’s trailing-12-month net income margin is negative 108.94% compared to the 4.57% industry average. Likewise, its trailing-12-month EBIT margin is negative 225.36% compared to the 7.70% industry average.
HOFV’s adjusted EBITDA loss widened marginally year-over-year to $7.38 million in the third quarter ended September 30, 2022. Its net loss came in at $11.12 million compared to net profit of $8.15 million from the prior-year quarter. Also, its net loss per share amounted to $0.09, widened by 12.5% from the same quarter last year.
HOFV’s EPS is expected to decrease 25% year-over-year to negative $2.2 for the quarter ending March 2023. Also, its EPS is expected to remain negative in the fiscal year 2023. The stock has lost 65.9% over the past year to close the last trading session at $8.64.
HOFV’s POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system. It also has an F for Quality and a D grade for Stability and Value. Within the same industry, it is ranked last.
In addition to the POWR Rating grades we have stated above, you can see HOFV’s Growth, Sentiment, and Momentum ratings here.
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SOND shares were trading at $0.68 per share on Monday morning, down $0.04 (-5.49%). Year-to-date, SOND has declined -45.16%, versus a 4.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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