DiamondRock Hospitality (DRH) Earnings Highlight Interest Coverage Strain Challenges Bullish Narratives

DiamondRock Hospitality (DRH) closed out FY 2025 with Q4 revenue of US$274.5 million and basic EPS of US$0.12, while trailing twelve month revenue came in at about US$1.1 billion and EPS was US$0.44. The company has seen quarterly revenue move between US$254.9 million and US$305.7 million over the fiscal year, with basic EPS ranging from US$0.05 in Q1 to US$0.19 in Q2. This sets a clear backdrop for how investors might weigh the current 8.2% trailing net margin and the reported earnings momentum. Taken together, the latest print highlights a story in which improving profitability and the existing valuation gap are likely to be central for anyone watching these results.

See our full analysis for DiamondRock Hospitality.

With the headline numbers on the table, the next step is to see how they line up against the widely shared narratives around DRH. This is where the tension between earnings momentum, financial risk, and the perceived valuation gap really starts to show.

See what the community is saying about DiamondRock Hospitality

TTM profit margin up to 8.2%

• On a trailing 12 month basis, DRH earned US$91.6 million of net income on about US$1.1b of revenue, which works out to an 8.2% net margin compared with 3.4% a year earlier.
• What bulls like is that this higher margin lines up with their view that upgraded, higher end hotels can support stronger profitability, although:
  • Trailing earnings grew very quickly at 139.6% over the last year, yet bullish expectations still look for margins to get to around 11% in the coming years, which is a step up from the current 8.2%.
  • Revenue in the data set is growing at a far slower pace than earnings, so the bullish idea of premium, experiential hotels driving both stronger spending and long term profit growth depends on this margin improvement sticking rather than just one strong year.

If you want to see how these margin shifts feed the positive case, check out the full bull thesis here: 🐂 DiamondRock Hospitality Bull Case

FFO and interest coverage tension

• Funds From Operations over the trailing year were a little over US$200 million at the Q3 2025 mark, yet management’s own risk profile shows that interest payments are still not well covered by earnings.
• Skeptics focus on this gap because it pushes back against the bearish worry that cash flow will be too thin to handle debt and ongoing hotel investment:
  • The FFO numbers, such as US$66.7 million in Q2 2025 and US$49.6 million in Q3 2025, show meaningful cash generation, but the risk summary still flags interest coverage as a major financial issue, so bears argue that a lot of this cash is already spoken for.
  • Bears also point to rising labor and renovation costs as ongoing pressures, and when you set that next to the flagged interest coverage risk, it helps explain why an unstable dividend track record remains a concern for income focused investors.

Skeptics think the latest cash flow still leaves plenty of questions about debt and payouts: 🐻 DiamondRock Hospitality Bear Case

DCF fair value gap vs 22.3x P/E

• DRH trades at US$10.04 per share, while the provided DCF fair value is US$19.99641630182066 and the trailing P/E is 22.3x compared with 12.8x for the Global Hotel & Resort REITs industry and 104.1x for the peer group.
• Consensus style thinking has to juggle that valuation mix, because:
  • The roughly 50% gap between the current price and the DCF fair value suggests room for upside if the 8.2% margin and 139.6% earnings growth are repeated, yet the 22.3x P/E already sits above the wider industry average.
  • At the same time, forecasts in the data set show earnings growth of about 9.8% a year and revenue growth of roughly 2.3% a year, which are more moderate than the past year’s earnings jump, so investors have to decide whether to lean more on the discounted DCF figure or on the higher than industry P/E and the modest revenue growth outlook.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for DiamondRock Hospitality on Simply Wall St. Add the company to your watchlist or portfolio so you’ll be alerted when the story evolves.

If this mix of optimism and concern around DRH has you thinking, take a moment to review the numbers yourself and move quickly to shape your own view. You can start with 3 key rewards and 2 important warning signs.

Explore Alternatives

DRH’s higher than industry P/E, modest forecast revenue growth, flagged interest coverage risk, and concerns about dividend stability may lead some investors to look for stronger fundamentals.

If those debt and income questions seem like a red flag, you could consider putting your capital to work by checking stocks in our solid balance sheet and fundamentals stocks screener (39 results) built to handle tougher conditions more comfortably.

This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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