Online Travel Stocks Valuation Post The Correction

  • The online travel stocks have seen significant corrections over the last three months, closely resembling the movements of the NASDAQ Internet index.
  • The price corrections and the release of the latest results (Q1 2014) make it necessary to relook at the valuation multiples of the OTAs and their investment attractiveness.
  • Priceline continues to stand out as the most attractive OTA stock, following the recent corrections across the sector.

Online travel stocks valuation post the price correction

The markets, in 2014, have moved in stark contrast to the bull run of 2013. A correction in stocks post the huge gains of 2013, was expected and the correction becomes evident after observing the movements of the key indices, summarized in the table below.

Index

2013 change (%)

3 month change (%)

QNET (NASDAQ Internet)

68.81%

-11.11%

.IXIC (NASDAQ Composite)

41.09%

-2.37%

.INX (S&P 500)

31.80%

3.00%

The huge gains of 2013 had been replaced by a significant correction over the last three months, and we believe the markets are poised for a recovery following the recent corrections. The recent reports hinting at lower unemployment rates, improving payrolls and recent strength in the stock markets are few signs of an improving economy in the United States. We today update our outlook on the OTA (Online Travel Agents) sector, in view of the upcoming recovery.

The script in the OTA sector has closely followed the movements of the NASDAQ internet index, with the huge gains of 2013 followed by corrections over the last 3 months.

Stock

2013 change (%)

YTD change (%)

3 month change (%)

Priceline

90.90%

3.83%

-11.55%

Expedia

17.35%

3.70%

-10.13%

Orbitz worldwide

165.93%

-0.82%

-20.08%

TripAdvisor

100.35%

15.60%

-6.54%

HomeAway

91.82%

-19.80%

-28.33%

HomeAway (NASDAQ:AWAY) and Orbitz Worldwide (NYSE:OWW) have seen the biggest corrections among the online travel companies following the huge gains of 2013 while TripAdvisor (NASDAQ:TRIP)  has been the least affected stock. We today compare the latest price movements to the latest earnings data (read Q1 2014) released by the OTAs. The table below displays the Y/Y growth in topline and bottomline, as reported by the 5 OTAs in their Q1 2014 results.

Company

Q1 2014 Y/Y revenue growth

Q1 2014 Y/Y earnings growth

Priceline

26.2%

31.3%

Expedia

18.8%

-85.7%

Orbitz worldwide

3.6%

-103.7%

TripAdvisor

22.2%

9.3%

HomeAway

33.0%

-16.7%

Priceline.com (NASDAQ:PCLN) continued to be the most consistent performer among the group with topline growth accompanied by a solid growth in earnings. In comparison, with the exception of TripAdvisor, the other OTAs saw a fall in earnings even as the revenue base swelled over the year ago quarter. The fall in stock prices and changes in earnings make it necessary to re-look at the valuation multiples of the online travel stocks in order to evaluate the investment attractiveness of the stocks under consideration.

Company

Last traded Price in $ (May 23)

LTM Earnings per share in $ (EPS)

LTM P/E (Price-to-Earnings ratio)

One year Forward P/E *

PEG ratio (P/e-to-Earnings growth) *

Priceline

1197.12

37.50

31.92

24.38

1.26

Expedia

71.39

2.32

30.77

21.91

1.52

Orbitz worldwide

7.24

0.11

65.82

21.29

0.69

TripAdvisor

94.42

1.45

65.12

50.74

2

HomeAway

32.60

0.19

171.58

155.24

6.67

*Based on Zacks.com estimates

Using the P/E metric (As all the OTAs are profitable on a LTM basis), we clearly see that the most attractively priced stocks are Orbitz worldwide, Expedia (NASDAQ:EXPE) and Priceline. Going a step ahead we look at the PEG ratio in order to pick the best stock among the three shortlisted stocks. Looking at the PEG ratio, Orbitz Worldwide and Priceline stand out as the two most attractive stocks among the OTAs.

Priceline, known for its consistent growth and industry leading margins, apart from the stability of huge Cash flows, in our opinion continues to remain the best investment option in the online travel sector, considering and comparing the risk/return profile of Orbitz Worldwide and Priceline.

We reiterate our long term positive outlook on Priceline and following the recent correction in price, long term investors can look for significant gains from the PCLN stock. You can read our detailed valuation of Priceline based on Discounted Cash Flow. Also read our bullish and bearish analysis on PricelineExpedia, Orbitz worldwideTripadvisor and many other stocks on our website.

To see Priceline’s latest stock price movement, click here (NASDAQ:PCLN)

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Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. The author may not be a certified/registered investment advisor, and the opinions expressed should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions. Neither Amigobulls, nor the author have any business relationship with any of the companies covered in this post.

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