Wyndham Hotels & Resorts (WH) is a major player in the hotel industry, boasting over 9,200 hotels across 95 countries with a predominantly asset-light approach.

Despite owning only a fraction of these properties directly, it maintains high profitability through franchise and management fees, shown by its $1.4 billion revenue in 2023 and strong free cash flow.

Concerns about travel spending slowdown post-pandemic may impact its stock, but its resilient business model and financial flexibility position it well to navigate economic uncertainties and potentially even gain market share.

Investor Essentials Daily:
Tuesday FA Alpha 50
Powered by Valens Research

Wyndham Hotels & Resorts (WH) is one of the world’s largest hotel franchising companies based on the number of properties.

Through a smart asset-light strategy focused on franchising, Wyndham has consistently achieved industry-leading returns.

Wyndham operates 25 brands with over 9,200 hotels and nearly 880,000 rooms across over 95 countries.

Unlike most hotel operators, Wyndham owns very few of these properties directly. It owns less than 1% of 9,200 total properties currently.

Instead, it utilizes a franchising model where it signs long-term contracts with hotel owners to license its brand names and operate under one of Wyndham’s brands in exchange for fees.

In 2023, Wyndham reported $1.4 billion in revenues while spending a relatively small 7% of revenues on capital expenditures like property, plant, and equipment.

This low capital intensity allows Wyndham to convert the vast majority of its profits into free cash flow annually.

Wyndham has been able to achieve consistently high Uniform return on assets ”ROA”, which currently sits near 75%.

However, concerns about a potential slowdown in travel spending may be weighing on Wyndham’s stock.

Spending on business and leisure travel accelerated strongly in the post-pandemic recovery but faces economic uncertainty going forward. If macroeconomic headwinds emerge, travel demand could soften.

Nonetheless, Wyndham’s asset-light model positions it well to manage through periods of lower travel spending.

Franchise and management fees continue to be paid to Wyndham regardless of the underlying performance of individual hotels.

This was demonstrated during the COVID-19 pandemic – while Revenue per available room (RevPAR) plunged across the industry, Wyndham still grew net income in 2020 due to recurring fee revenue.

Wyndham may also be able to leverage its significant scale in the hotel industry to continue taking market share through downturns.

The company reported its 15th consecutive quarter of sequential growth with 1,980 hotels and 243,000 rooms already in the pipeline.

Wyndham’s financial flexibility provides a key competitive advantage, particularly during challenging periods for the travel sector.

That is why it is a great FA Alpha 50 name.

Throughout financial market history, many of the world’s most successful investors have been candid in their belief that Generally Accepted Accounting Principles (“GAAP”) distort economic reality.

Warren Buffett, for example, once said investors should “concentrate on the world of companies, not arcane accounting mathematics.”

Investors who neglect the very real issues with as-reported accounting can find themselves caught up in investing with the crowd, blindly following hot “themes” without a thorough grasp of how to understand the businesses in question.

The only true way to focus on the “world of companies,” as Buffett suggests investors do, is to present a clear picture of how a business operates, something that can only be done by adjusting financial statements to reflect the arbitrary nature of certain accounting rules that leave much to discretion.

The world’s best investors understand the need to make these adjustments, which allows them to focus not on picking out the most popular companies but rather on looking for great names in sleepy areas that the market isn’t paying much attention to. From there, the goal is to then identify quality companies with significant growth potential at reasonable prices.

That’s exactly what we’ve set out to do with the FA Alpha, our monthly list of 50 companies that rank at the top for quality, high growth, and low valuations.

This list has outperformed the market by 300 basis points per year for over 20 years now, effectively doubling the performance of the market by focusing on the real fundamentals and valuations of companies with our proprietary Uniform Accounting framework.

See for yourself below.

To see the other 49 names on the list, click here.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research