Although the S&P 500 is down 1.4% over the past six months, Hyatt Hotels’s stock price has fallen further to $124.07, losing shareholders 18.5% of their capital. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in Hyatt Hotels, 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.

Even with the cheaper entry price, we're cautious about Hyatt Hotels. Here are three reasons why we avoid H and a stock we'd rather own.

Why Do We Think Hyatt Hotels Will Underperform?

Founded in 1957, Hyatt Hotels (NYSE:H) is a global hospitality company with a portfolio of 20 premier brands and over 950 properties across 65 countries.

1. Weak RevPAR Growth Points to Soft Demand

In addition to reported revenue, RevPAR (revenue per available room) is a useful data point for analyzing Travel and Vacation Providers companies. This metric accounts for daily rates and occupancy levels, painting a holistic picture of Hyatt Hotels’s demand characteristics.

Hyatt Hotels’s RevPAR came in at $140.87 in the latest quarter, and over the last two years, its year-on-year growth averaged 9.4%. This performance was underwhelming and suggests it might have to invest in new amenities such as restaurants and bars to attract customers - this isn’t ideal because expansions can complicate operations and be quite expensive (i.e., renovations and increased overhead).

2. Projected Revenue Growth Is Slim

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Hyatt Hotels’s revenue to rise by 3.2%, a slight deceleration versus its 6.2% annualized growth for the past two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.

3. Previous Growth Initiatives Have Lost Money

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Hyatt Hotels’s five-year average ROIC was negative 2.9%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.

Final Judgment

Hyatt Hotels falls short of our quality standards. Following the recent decline, the stock trades at 33.1× forward price-to-earnings (or $124.07 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. We’d suggest looking at the most entrenched endpoint security platform on the market.

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