Airbnb, Inc. (ABNB) and Choice Hotels International, Inc. (CHH) are two of the emerging players in the hospitality industry offering accommodation-related services. ABNB’s marketplace model connects hosts and guests online or through mobile devices, offering the facilities to book accommodations, including private rooms and luxury villas. CHH operates as a hotel franchisor worldwide operating under brands such as Comfort Suites, Clarion, WoodSpring Suites, and Cambria Hotels.

The hotel industry was severely impacted by the COVID-19 pandemic last year witnessing low occupancy and hotel closures. Even though the industry is far from returning to the pre-pandemic levels, it has been gradually recovering as the vaccine rollout continues and restrictions continue to be lifted. Several new methods such as contactless check-ins are further expected to help the industry revive in the post-pandemic scenario. According to a Lodging Analytics Research & Consulting (LARC) report, the United States’ RevPar is expected to increase by 30.6% in 2021. So, both ABNB and CHH should witness increasing demand for their services.

While ABNB has returned 2.5% over the past six months, CHH has gained 17.3%. However, in terms of the past month’s performance, ABNB is a clear winner with 13.7% returns versus CHH’s 2.3%. But which of these two stocks is a better pick now? Let’s find out.

Latest Movements

ABNB partnered with Visa Inc. (V) in April 2021 to enable ABNB Hosts in select markets to access their earnings more quickly with the help of ABNB’s use of Visa Direct, V’s real-time push payments platform. Sam Shrauger, ABNB’s Vice President of Payments said, “As one of the first travel platforms to enable Visa Direct, this new functionality will help our Host community access their earnings more quickly.”

CHH’s award-winning loyalty program Choice Privileges introduced the “Get on the Road. Get Rewarded” promotion in May 2021. This program is expected to continue through July 11 whereby Choice Privileges members who check-in for two separate qualifying stays at participating hotels will earn reward points. As a result, the company might witness an increasing number of customers at its hotels in the near term.

Recent Financial Results

ABNB’s revenue increased 5.4% year-over-year to $886.94 million for the first quarter ended March 31, 2021. The company’s gross booking value (GBV) increased 52% year-over-year to $10.30 billion. Its net loss for the quarter came in at $1.17 billion compared to $340.61 million in the prior-year period. Its loss per share increased 50% year-over-year to $1.95.

CHH’s revenue for the first quarter ended March 31, 2021, came in at $182.95 million, down 5.4% sequentially. However, the company’s operating income increased 161.9% sequentially to $44 million. CHH’s net income increased 184% sequentially to $22.34 million. Also, its adjusted EPS came in at $0.57 compared to $0.51 in the fourth quarter (ended December 31, 2020).

Expected Financial Performance

Analysts expect ABNB’s revenue to increase 59.6% in fiscal 2021 and 29.1% in fiscal 2022. The company’s EPS is expected to increase 87.1% in fiscal 2021 and 93% in fiscal 2022. Moreover, its EPS is expected to grow at a rate of 100.3% per annum over the next five years.

On the other hand, CHH’s revenue is expected to increase 31% in fiscal 2021 and 15% in fiscal 2022. Analysts expect its EPS to increase 54.5% in fiscal 2021 and 26.5% in fiscal 2022. The company’s EPS is expected to grow at a rate of 27.6% per annum over the next five years.

Profitability

ABNB’s trailing-12-month revenue of $3.42 billion compares with CHH’s $738.84 million. However, CHH is more profitable with an EBITDA margin of 23.86% versus ABNB’s negative value.

Also, CHH’s ROTC and EBIT margin of 7.76% and 19.17% compare favorably with ABNB’s negative values.

Valuation

In terms of forward EV/S, ABNB is currently trading at 15.88x, 111.7% more expensive than CHH’s 7.50x. ABNB’s forward EV/EBITDA of 120.53x is 411.6% higher than CHH’s 23.56x.

So, CHH is the more affordable stock.

POWR Ratings

CHH has an overall rating of B which equates to a Buy in our proprietary POWR Ratings system. However, ABNB has an overall rating of D which represents a Sell. The POWR Ratings assess stocks by 118 different factors, each with its weighting.

Both CHH and ABNB have a B grade for Momentum. This is consistent with CHH’s 17.3% gains over the past six months and 5.7% returns over the past three months, and ABNB’s 2.5% returns over the past six months and 13.7% gains over the past month.

CHH has a B grade for Quality, in sync with its trailing-12-month EBIT margin of 19.17%, which is 160.9% higher than the industry average of 7.35%. However, ABNB has a C grade for Quality, which is consistent with its negative value of 98.25% for its trailing-12-month EBIT margin compared to the industry average of 7.35%.

Moreover, CHH has a C grade for Value. This is justified given its forward P/S of 6.61x, which is slightly higher than the industry average of 1.31x. ABNB, on the other hand, has a D grade for Value, in sync with its forward P/S of 16.80x, which is 1,182.4% higher than the industry average of 1.31x.

Out of 20 stocks in the Travel – Hotels/Resorts industry, CHH is ranked #2 while ABNB is ranked #14.

Beyond what I’ve stated above, our POWR Ratings system has also rated both ABNB and CHH for Growth, Stability, and Sentiment. Click here to access all of ABNB’s ratings. Also, get all the CHH ratings here.

The Winner

Both ABNB and CHH are expected to witness increasing demand for their services considering the turnaround potential of the hotel industry. However, CHH seems to be a better bet now because of its lower valuation and higher profitability.

Our research shows that the odds of success increase if you bet on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about other top-rated stocks in the Travel – Hotels/Resorts industry.

ABNB shares were trading at $152.83 per share on Friday afternoon, up $2.13 (+1.41%). Year-to-date, ABNB has gained 4.11%, versus a 11.83% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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