Marriott Vacations has gotten torched over the last six months - since December 2024, its stock price has dropped 21.6% to $71.77 per share. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Marriott Vacations, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Marriott Vacations Will Underperform?
Even though the stock has become cheaper, we're cautious about Marriott Vacations. Here are three reasons why we avoid VAC and a stock we'd rather own.
1. Decline in Guests Points to Weak Demand
Revenue growth can be broken down into changes in price and volume (for companies like Marriott Vacations, our preferred volume metric is guests). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Marriott Vacations’s guests came in at 1.54 million in the latest quarter, and over the last two years, averaged 1.3% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Marriott Vacations might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
2. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Marriott Vacations historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.1%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
3. High Debt Levels Increase Risk
Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.
Marriott Vacations’s $5.33 billion of debt exceeds the $196 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $732 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Marriott Vacations could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Marriott Vacations can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
Marriott Vacations falls short of our quality standards. After the recent drawdown, the stock trades at 10.6× forward P/E (or $71.77 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
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