Should Value Investors Pick Marriott Vacations (VAC)?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Marriott Vacations Worldwide Corporation VAC stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Marriott has a trailing twelve months PE ratio of 21.11, as you can see in the chart below:

This level is slightly above the market at large, as the PE for the S&P 500 stands at about 19.61. If we focus on the long-term PE trend, Marriott’s current PE level puts it slightly below its midpoint over the past five years, but the number has risen over the past year.

However, the stock’s PE compares favorably with the Zacks classified Hotels & Motels industry’s trailing twelve months PE ratio, which stands at 26.69. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

We should also point out that Marriott has a forward PE ratio (price relative to this year’s earnings) of just 16.30, so it is fair to say that a slightly more value-oriented path may be ahead for Marriott stock in the near term too.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Marriott has a P/S ratio of about 1.30. This is much lower than the S&P 500 average, which comes in at 2.93 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.

P/CF Ratio

An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.

The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.

In this case, Marriott’s P/CF ratio of 15.71 is lower than the Zacks classified Hotels & Motels industry average of 16.15 which indicates that the stock is somewhat undervalued in this respect.

Broad Value Outlook

In aggregate, Marriott currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Marriott a solid choice for value investors.

What About the Stock Overall?

Though Marriott might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘F’. This gives VAC a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)

However, the company’s recent earnings estimates have been going up. The current quarter has seen one estimate go higher in the past sixty days compared to none lower, and the full year estimate has seen similar revisions as well.

This has had just a small impact on the consensus estimate though, as the current quarter consensus estimate has risen by 0.6% in the past two months, while the full year estimate has increased by 0.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

MARRIOT VAC WW Price and Consensus

MARRIOT VAC WW Price and Consensus | MARRIOT VAC WW Quote

The stock holds a Zacks Rank #2 (Buy), which indicates robust fundamentals and expectations of outperformance in the near term.

Bottom Line

Marriott is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Moreover, the company belongs to a good industry (among the Top 22%) and has a Zacks Rank #2, which indicate strong growth potential in the near future. Further, the Zacks categorized Hotels & Motels industry has outperformed the broader market year to date, as you can see below:

So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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