Better buy: Sydney Airport Holdings Ltd or Mantra Group Ltd?

The Australian Bureau of Statistics released data today that showed another record increase in short-term visitor arrivals for the 12-month period ending February 29 2016.

During the period the number of arrivals grew to a seasonally adjusted figure of over 7.5 million. This was an increase of almost 600,000 on the same period a year earlier.

I have little doubt that a weaker Australian dollar has played a key role in these increases. Although it has strengthened in recent weeks, it is still comparatively weaker than it was 18 months ago, against many major currencies.

With many speculating that the Reserve Bank of Australia may be set to cut interest rates twice this year, this temporary strengthening of the Australian dollar could be coming to an end. If the dollar were to drop down to 65 U.S cents as many have predicted, this could cause tourist arrivals to ramp up even further.

Sydney Airport Holdings Ltd (ASX: SYD) is the main gateway into Australia with approximately 39.7 million domestic and international passengers passing through it in 2015. As tourism ramps up in Australia I would expect the company to benefit hugely.

The shares are definitely not cheap though it must be said. At 50x estimated FY 2016 earnings, there may be limited upside at the current price.

A company which I believe is reasonably priced and just as likely to benefit from increasing levels of tourism is hotel and accommodation service provider Mantra Group Ltd (ASX: MTR). Its shares are priced at 24x estimated FY 2016 earnings, which is far more respectable in my opinion.

It has been busy adding nine new properties to its portfolio in the last six months as it tries to cope with the increasing demand. This means it is closing in fast on having 20,000 rooms in its arsenal.

With the average room rate increasing to over $171 a night, the company is in a great position to produce earnings ahead of market expectations. According to CommSec, analysts are expecting earnings to grow by almost 20% per annum through to 2018, and I see little reason why they won’t achieve this.

For me, at present Mantra Group looks like a better investment than Crown Resorts Ltd (ASX: CWN). Crown will most certainly benefit from the tourism boom, but due to providing premium accommodation it cannot respond as quickly as Mantra Group. Its six-star Barangaroo project will be a huge boost, but that is not expected to open now until around 2021.

With Mantra Group’s share price down by around 13% in 2016, I believe now could be a great time to buy shares in this growing company.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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