Hilton Grand Vacations (HGV)

Timeshare vacation company Hilton Grand Vacations (NYSE:HGV) fell short of the market’s revenue expectations in Q1 CY2025, with sales flat year on year at $1.15 billion. Its non-GAAP profit of $0.09 per share was 83% below analysts’ consensus estimates.

Company Overview

Spun off from Hilton Worldwide in 2017, Hilton Grand Vacations (NYSE:HGV) is a global timeshare company that provides travel experiences for its customers through its timeshare resorts and club membership programs.

Airlines, hotels, resorts, and cruise line companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted from buying "things" (wasteful) to buying "experiences" (memorable). In addition, the internet has introduced new ways of approaching leisure and lodging such as booking homes and longer-term accommodations. Traditional airlines, hotel, resorts, and cruise line companies must innovate to stay relevant in a market rife with innovation.

Hilton Grand Vacations's primary competitors include Marriott Vacations Worldwide (NYSE:VAC), Wyndham Destinations (NYSE:WYND), Bluegreen Vacations (NYSE:BXG), Hyatt Residence Club (owned by Hyatt Hotels NYSE:H) and Diamond Resorts (owned by Apollo NYSE:APO).

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, Hilton Grand Vacations’s sales grew at an impressive 22.1% compounded annual growth rate over the last five years. Its growth beat the average consumer discretionary company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new property or trend. Hilton Grand Vacations’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 11.6% over the last two years was well below its five-year trend.

We can dig further into the company’s revenue dynamics by analyzing its number of members and conducted tours, which clocked in at 725,000 and 174,525 in the latest quarter. Over the last two years, Hilton Grand Vacations’s members averaged 19.8% year-on-year growth while its conducted tours averaged 24% year-on-year growth.

This quarter, Hilton Grand Vacations missed Wall Street’s estimates and reported a rather uninspiring 0.7% year-on-year revenue decline, generating $1.15 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 11.3% over the next 12 months, similar to its two-year rate. This projection is underwhelming and suggests its newer products and services will not catalyze better top-line performance yet.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Hilton Grand Vacations’s operating margin has been trending up over the last 12 months and averaged 14.5% over the last two years. Its solid profitability for a consumer discretionary business shows it’s an efficient company that manages its expenses effectively.

In Q1, Hilton Grand Vacations generated an operating profit margin of 34.1%, up 28.4 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Hilton Grand Vacations, its EPS declined by 3.9% annually over the last five years while its revenue grew by 22.1%. However, its operating margin actually expanded during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

In Q1, Hilton Grand Vacations reported EPS at $0.09, down from $0.94 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Hilton Grand Vacations’s full-year EPS of $1.87 to grow 98.6%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Hilton Grand Vacations has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 14.6% over the last two years, better than the broader consumer discretionary sector.

Hilton Grand Vacations broke even from a free cash flow perspective in Q1. This result was good as its margin was 32.9 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Hilton Grand Vacations historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3.6%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Hilton Grand Vacations’s ROIC has increased over the last few years. This is a good sign, and we hope the company can continue improving.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Hilton Grand Vacations’s $7.03 billion of debt exceeds the $259 million of cash on its balance sheet. Furthermore, its 7× net-debt-to-EBITDA ratio (based on its EBITDA of $985 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Hilton Grand Vacations could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Hilton Grand Vacations can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We struggled to find many positives in these results as its revenue, EPS, and EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better, but the stock traded up 9.4% to $36.77 immediately after reporting.

Updated: July 10, 2025 at 10:06 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Hilton Grand Vacations isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its declining EPS over the last five years makes it a less attractive asset to the public markets. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

Hilton Grand Vacations’s P/E ratio based on the next 12 months is 12.9x. While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $48.17 on the company (compared to the current share price of $47.97).