We recently compiled a list of the 10 Most Undervalued Hotel Stocks To Invest In Now. In this article, we are going to take a look at where Melco Resorts & Entertainment Limited (NASDAQ:MLCO) stands against the other hotel stocks.
Exploring the Hotel Market: Trends and Highlights
The hotel market is experiencing a significant transformation as it rebounds from the impacts of the COVID-19 pandemic. According to a report by Zion Market Research, the global hotel market was valued at $1.37 trillion in 2023. The market is expected to expand at a compound annual growth rate (CAGR) of 9.14% during 2024-2032 to reach a value of $2.99 trillion by the end of the forecast period. This growth is driven by increased travel demand, higher disposable incomes, and a resurgence in both leisure and business travel.
SiteMinder’s Hotel Booking Trends 2023 report reveals significant changes in the hospitality industry as it rebounds from the pandemic. The report analyzes bookings from travelers in 20 of the world’s most established destinations. According to the report, in 2023, international check-ins increased in all but one market compared to the previous year. Malaysia, New Zealand, and Taiwan experienced the biggest jumps due to their border reopenings in 2022.
In 2023, hotels raised their prices while still achieving record check-ins. The average daily rate (ADR) globally reached $192, reflecting an 11% increase from 2022 and a 38% rise compared to 2019. Italy saw the largest increase, with its ADR rising by $42 or 20% year-on-year. This indicates that hotels are responding to strong pent-up demand by adjusting their pricing strategies.
Despite the increase in prices, travelers are booking shorter stays. According to the report, 81% of hotel stays globally were for just one or two nights. Only a small fraction of stays were longer than three nights, highlighting a shift in traveler preferences.
Investor Sentiment in 2024
Overall, hotel investors are feeling positive about the market for 2024. In the US, many investors are eager to increase their investments in hotels.
CBRE Hotels Research conducted a Global Hotel Investor Intentions Survey in early 2024 to evaluate the hotel investment landscape. The results show that investor sentiment in the US is strong, with 50% of respondents planning to increase their allocation to hotel acquisitions this year. About 35% expect their acquisition activities to stay the same as in 2023, while less than 16% anticipate a decrease.
Despite high interest rates, many investors are looking to buy hotels. Over 70% of those surveyed said they are focusing on value-added and opportunistic investments. These types of acquisitions allow investors to improve properties by adding rooms, redesigning spaces, or enhancing amenities to boost returns and long-term value.
Our Methodology
To compile our list of the 10 most undervalued hotel stocks to invest in now, we used the Finviz and Yahoo stock screeners to find the largest hotel companies. We also reviewed our own rankings and consulted various online resources to compile a list of the largest publicly traded hotel companies, the most popular hotel stocks, and REITs.
From an initial pool of over 30 hotel stocks, we focused on those trading at under 20 times their forward earnings as of November 11. Then, we selected the stocks that analysts believe possess the greatest potential for growth. Finally, we ranked the 10 most undervalued hotel stocks to invest in now based on their average price target upside potential according to analysts as of November 11, 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Is Melco Resorts & Entertainment Limited (MLCO) The Most Undervalued Hotel Stock To Invest In Now?
A wide shot of a luxurious hotel with a neon lit gaming floor.
Melco Resorts & Entertainment Limited (NASDAQ:MLCO)
Forward P/E: 15.87
Analysts’ Upside Potential: 42.96%
Melco Resorts & Entertainment Limited (NASDAQ:MLCO) is a Hong Kong-based company that ranks among the most undervalued hotel stocks. The company develops, owns, and operates casino resorts and hotels in Macau, the Philippines, and other locations.
The company manages several key properties, such as City of Dreams and Altira Macau in Macau, City of Dreams Manila in the Philippines, and City of Dreams Mediterranean in Limassol in the Republic of Cyprus. Additionally, Melco Resorts & Entertainment Limited (NASDAQ:MLCO) operates three satellite casinos in Cyprus.
In the third quarter of 2024, Melco Resorts & Entertainment Limited (NASDAQ:MLCO) reported total operating revenues of $1.18 billion, an increase of 16% year-over-year. This growth is largely due to improved performance across all segments, driven by a recovery in tourism to Macau.
Melco Resorts & Entertainment Limited (NASDAQ:MLCO) is actively enhancing its properties to attract more visitors. In September, the company launched a revamped loyalty program aimed at premium customers, which is already showing positive results. In the Q3 2024 earnings call, management shared that the company has also opened new gaming areas at its resorts, such as a new signature premium slot area at City of Dreams and the Dragon Zone at Studio City.
To improve accessibility across its properties, Melco Resorts & Entertainment Limited (NASDAQ:MLCO) is making upgrades to its entrances and installing interactive LED screens to engage guests. The installation of RFID technology for gaming tables is also progressing well, with plans to complete it at City of Dreams by early 2025.
In October, the company opened the City of Dreams Sri Lanka, which includes the 687 key Cinnamon Life hotel. Looking ahead, Melco Resorts & Entertainment Limited (NASDAQ:MLCO) has a strong pipeline of projects for 2025, including enhancements to customer flow at City of Dreams and the relaunch of the popular House of Dancing Water show.
With its strong financial performance and strategic initiatives aimed at growth, Melco Resorts & Entertainment Limited (NASDAQ:MLCO) presents a compelling investment opportunity for those interested in hotel and casino stocks. Analysts are also bullish on MLCO. The 12-month median price target set by analysts indicates a potential upside of 42% from the current stock price.
Overall, MLCO ranks 2nd on our list of the most undervalued hotel stocks to invest in now. While we acknowledge the potential of MLCO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MLCO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
