Is Choice Hotels International, Inc. overvalued or undervalued?

As of 8 August 2024, the valuation grade for Choice Hotels International, Inc. has moved from expensive to risky, indicating a shift in perception regarding its market position. The company appears to be overvalued, given its high P/E ratio of 35, a PEG ratio of 2.02, and an EV to EBITDA of 20.71, which are significantly higher than its peers. For instance, Norwegian Cruise Line Holdings Ltd. has a P/E of 14.40 and an EV to EBITDA of 9.78, illustrating a stark contrast in valuation metrics.
In comparison to its peers, Choice Hotels' valuation ratios suggest it is not justified by its financial performance, especially considering its negative capital employed and negative book value. The stock has underperformed relative to the S&P 500 across multiple timeframes, with a year-to-date return of -22.62% compared to the S&P 500's 12.22%. This further reinforces the notion that the stock is overvalued in the current market environment.