Will Summer Travel Help This Stock Sizzle? - InvestingChannel

Will Summer Travel Help This Stock Sizzle?

Proprietary Data Insights

Financial Pros Top Travel Services Stock Searches This Month

Rank Name Searches
#1 Expedia Group Inc 123
#2 Booking Holdings Inc 121
#3 Trip.com Group Ltd 54
#4 Tripadvisor Inc 11
#5 Lindblad Expd Hld 10

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Industrials

Will Summer Travel Help This Stock Sizzle?

Despite record prices at the gas pumps, this Independence Day will be the second busiest since 2000, according to a forecast from AAA. 

But that’s not all. 

Travel spending surpassed 2019 levels in April of this year, according to a report released by the U.S. Travel Association. 

Even with a potential recession looming, demand for travel after the pandemic is on the rise. 

Despite that, many travel stocks are down in 2022. One of the largest players in the space is Expedia Group (EXPE).

Amongst financial pros, it just edges out Booking Holdings (BKNG) for travel service stock searches this month.

Shares are down more than 40%. But is now the time to get in?

Find out our thoughts below…

 

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EXPE’s Business

Expedia Group (EXPE) is an online travel company that caters to customers domestically and internationally. Some of the most popular brands in the EXPE portfolio include Hotels.com, Expedia, HomeAway, Vrbo, Orbitz, Travelocity, CheapTickets, Hotwire, CarRentals.com, and Expedia Cruise. 

The company operates through three segments: Retail, B2B, and trivago.  

A key metric investors follow when analyzing EXPE is gross bookings. This tells us how many trips customers buy.

In Q1 2022, it had $24.4 billion in gross bookings, a jump of 58% from the same period last year. That wasn’t entirely surprising given the rebound in domestic travel. That’s still shy of Q1 of 2018 and 2019 which came in at $27.2 and $29.4 billion

 

The firm generates a majority of its revenues from lodging as opposed to air travel and advertising.

In fact, it accounted for over 71% of the firm’s revenues in Q1 2022. 

Although international travel remains tepid, domestic vacations picked up substantially in the past year.

Financials

Revenues in EXPE were growing consistently until COVID hit. However, the firm is now getting back on track, boosting its 2021 revenues by 65% from 2020.  

While it may take some time to get back to its 2019 revenue numbers, it is encouraging to see EXPE maintain a relatively high gross margin at 83.5%

 

This is largely due to the company’s low variable costs associated with each booking.

Furthermore, the firm was able to go from free cash flow negative in 2020, to free cash flow positive in 2021. 

EXPE carries $8.07 billion in total debt and $5.55 billion in cash. The debt costs the company $334 million each year in interest expenses, which more than doubled in 2020. However, management has done a good job to pay this down.

Now, debt is a concern in a rising interest rate environment. EXPE has a current ratio of 0.87x. Anything below a 1 indicates the company does not have enough assets to cover its short-term liabilities. 

Furthermore, the firm has a quick ratio of 0.60x. Again, below 1 indicates it doesn’t have enough liquid assets to pay its current liabilities. Which is not ideal in this market. 

Valuation

EXPE has a P/E ratio of 70.43x, which is high compared to most S&P 500 stocks. However, it doesn’t compare badly to its competitors BKNG 153.95x and ABNB 79.69x. 

It is also worth noting that P/E GAAP (FWD) is improving at 19.88x. 

EXPE has a price-to-cash-flow ratio of 1.57x, which is better than BKNG 6.35x, ABNB 9.66x, and TCOM 4.64x. 

 

Even more compelling is EXPE has a better price-to-cash flow than BKNG, TCOM, ABNB, and TNL

 

Additionally, EXPE has better profit margins than BKNG, TCOM, ABNB, and TNL

However, it falls behind in EBIT margin and EBITDA margin to ABNB and BKNG. 

But where EXPE stands out is cash from operations, at $4.57 billion. That is significantly better than ABNB at $2.79 billion, and nearly equal to BKNG at $4.72 billion. 

Why is that so impressive?

Because BKNG and ABNB are more than 4x of the market cap of EXPE. 

 

 

Of course, growth numbers are going to look inflated after COVID. But it’s still promising to see EXPE grow revenues faster than its competition. 

Our Opinion – 7/10

EXPE is far from its 2019 glory. However, the company is improving its revenues, maintaining a high gross margin, and improving booking trends. 

Normally, you wouldn’t want to invest in a company related to travel as the economy is slowing down. However, there is a lot of pent-up demand from the pandemic. 

Furthermore, EXPE shares are down 45% YTD, which makes it a compelling stock at these levels. 

While it’s surely possible that shares can drop further from here. We believe over the next few years this stock will be trading considerably higher.

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