Headquartered in Fairfax, Virginia, Playa Hotels & Resorts N.V. (PLYA) owns, develops, and operates resorts in prime beachfront locations in Mexico and the Caribbean. It owns a portfolio of 22 resorts with 8,366 rooms located in Mexico, Jamaica, and the Dominican Republic as of December 31, 2021.

Rising concerns over the surging inflation and the Fed’s interest rate hikes to control it have prompted consumers to cut down on their expenses, especially traveling budgets, to cope with rising costs. Moreover, the brief disruption from the omicron variant at the start of the year led to slowing travel activities in the first quarter. However, PLAY’s first-quarter financial results exceeded the company’s expectations.

Moreover, insiders at PLYA look extremely optimistic about the stock’s near-term prospects, as indicated by their purchase of 160,099 shares over the last six months.

Here is what could shape PLYA’s performance in the near term:

Industry Outlook

While the recession concerns could hurt the travel industry’s growth in the near term, the industry is poised to make a strong comeback, completely removing the losses fueled by the pandemic. According to the World Travel & Tourism Council (WTTC), U.S. travel and tourism is expected to return to pre-pandemic levels in 2022, accounting for almost $2 trillion in U.S. GDP.

In addition, strong vaccination rates, reduced social distancing protocols, and mask mandates are encouraging global travel once again. Therefore, accelerating travel demand is expected to bolster the global travel and tourism industry this year and beyond.

Latest Developments

Last month, PLYA and Marriott International, Inc. (MAR) announced an agreement between Francisco Martínez, the owner of Sanctuary Cap Cana, and Marriott International to start Marriott’s first inclusive extension of The Luxury Collection brand in the Dominican Republic with Sanctuary Cap Cana, a Luxury Collection Adult All-Inclusive Resort. The new resort is expected to open in summer 2022 under The Luxury Collection brand.

Robust Financials

For the first quarter ending March 31, 2022, PLYA’s total revenues increased 182.4% year-over-year to $219.57 million. Its operating income amounted to $54.04 million compared to an operating loss of $52.82 million in the prior period. Its net income came in at $42.75million compared to a net loss of $69.75 million in the previous period. The company’s EPS stood at $0.26 compared to a loss per share of $0.43 in the prior period.

Strong Profitability

PLYA’s trailing-12-month gross profit margin of 44.69% is 23.3% higher than the 36.25% industry average. Also, its trailing-12-month levered FCF margin of 17.44% is 414.2% higher than the industry average of 3.39%. In addition, its trailing-12-month EBITDA margin of 24.25% is 100.2% higher than the 12.11% industry average.

Impressive Growth Prospects

Street expects PLYA’s revenues to rise 59.1% in the second quarter ending June 2022 to $204.88 million. The EPS is expected to rise 266.7% In the current quarter, 144.4% in the next quarter, and 34.1% next year.

Furthermore, the company has an impressive earnings surprise history; it topped the Street’s EPS estimates in three of the trailing four quarters.

Consensus Rating and Price Target Indicate Potential Upside

All the three Wall Street analysts that rated PLYA rated it Buy. The 12-month median price target of $13.00 indicates an 83.9% potential upside. The price targets range from a low of $11.00 to a high of $15.00.

POWR Ratings Reflect Solid Prospects

PLYA has an overall B grade, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PLYA has an A grade for Sentiment and a B grade for Growth and Quality. The strong earnings estimates are consistent with PLYA’s Sentiment grade. Its high profitability and robust financials are in sync with the Growth and Quality grade.

Among the 22 stocks in the B-rated Travel – Hotels/Resorts industry, PLYA is ranked #3.

Beyond what I stated above, we have graded PLYA for Stability, Value, and Momentum. Get all PLYA ratings here.

Bottom Line

The company’s remarkable revenue growth across all segments and insider buying should boost investor confidence regarding its future performance.

Also, given the stock’s higher profitability and solid growth attributes, we think it could be an opportune time to scoop up its shares.

How does Playa Hotels & Resorts (PLYA) Stack Up Against its Peers?

PLYA has an overall POWR Rating of B, which equates to a Buy. Check out this other stock within the Travel-Hotels/Resorts industry with A (Strong Buy) ratings: Bluegreen Vacations Holding Corp (BVH).

PLYA shares were trading at $7.07 per share on Wednesday morning, down $0.00 (0.00%). Year-to-date, PLYA has declined -11.40%, versus a -20.28% rise in the benchmark S&P 500 index during the same period.

About the Author: Spandan Khandelwal

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing. More...

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