The online travel market segment is projected to account for nearly one-third of the total global travel market by 2012, according to the Global Online Travel Report 2012 by yStats.com, and provides a good investment opportunity. The report suggests that while the U.S. is the top online travel-booking market in the world, emerging economies in the travel segment, such as China, India, and Brazil, are growing and are a good investment opportunity.(Read “Why China Is Hot for Travel Stocks.”)
The top investment opportunity in the online travel segment is priceline.com Incorporated (NASDAQ/PCLN), which with a stock price of nearly $700.00 and a market-cap of $40.0 billion, is by far the “best of breed” in the online travel segment. Expedia, Inc. (NASDAQ/EXPE) is the second-largest player, but with a market-cap of $8.7 billion, it’s well behind priceline.com.
If you’re looking for a small-cap investment opportunity in the sector and don’t mind the extra risk, then take a look at the sector’s poorer cousin Travelzoo Inc. (NASDAQ/TZOO),which has a market-cap of $324 million. What makes Travelzoo an interesting investment opportunity is its potential and current valuation. The stock is also well down from a high of $90.80 on July 19, 2011, so there could be a major investment opportunity here. The stock has underperformed the S&P 500, declining 18.2% over the past 52 weeks compared to a 10.6% advance by the S&P 500.
Founded in 1998, Travelzoo is an online provider of travel, entertainment, and local deals that works with about 2,000 companies from around the world. Products offered include airline, hotel, cruise line, and vacation packages. The company has over 250 “deal experts” who operate in 11 offices across North America (U.S. and Canada), Europe (France, Germany, Spain, and the U.K.), and Asia (Australia, Japan, and Hong Kong); its objective is to achieve the best deals possible for its 25 million subscribers. Travelzoo Asia Pacific also offers local deals in China. The company has fared well in Australia, Hong Kong, and Japan, after launching in these regions in 2011.
We like the prospects for Travelzoo as a small-cap investment opportunity on the global travel market, but watch the extremely competitive travel environment. Travelzoo is the riskiest stock of the group, with a beta of 3.1, versus 1.7 for priceline.com and 0.8 for Expedia, according to data from Yahoo! Finance. This means that in a rising market, Travelzoo would rise faster, in theory, than its two rivals.
For Travelzoo, revenues increased in 10 straight years from 2003 to 2012. On the earnings side, the picture has been inconsistent, but Travelzoo has turned a profit in each of the last 11 years. In my view, Travelzoo needs to deliver consistently on earnings before investors will jump in with confidence that the company can grow.
On its stock chart, which is featured below, Travelzoo is at a crossroads, as shown by the blue oval.
The stock is trading just below its 200-day moving average (MA) of $21.13 but above its 50-day MA of $20.34. A downside break could see a move to the blue horizontal support line at around $20.00, and it could fill in the breakaway gap. This is the risk.
Alternatively, an upside break could see Travelzoo move toward its 13-week high of $27.94 and above $30.00, based on my technical analysis.
Chart courtesy of www.StockCharts.com
In my view, Travelzoo is an investment opportunity for speculators, but it could return big profits if the company can accelerate its earnings. You can play the stock via call options.
Please note: the information on Travelzoo contained in this article is not to be construed as advice to buy the stock; rather, it is meant to provide an example of a potential good investment opportunity.
Play the Travel Space with This Former Highflier was last modified: March 5th, 2013 by George Leong, B.Comm.
George Leong is a senior editor at Lombardi Financial. He has been involved in analyzing the stock markets for two decades, employing both fundamental and technical analysis. His overall market timing and trading knowledge are extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi Financial’s popular financial newsletters, including Red-Hot Small-Caps, Lombardi’s Special Situations, Judgment Day Profit Letter, Pennies to Millions, and 100% Letter. He is also the editor-in-chief of a... Read Full Bio »
Forecasts Aug. 28, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 28, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)