Earnings are hard to trade because in afterhours, you can win or lose big-time and there’s nothing you can do about it. Luckily, if you bought Expedia Inc (NASDAQ:EXPE) stock before Wednesday’s earnings report, you were on the winning side.
Before you regret not making the trade, note that the opportunity might not be over just yet. A leading analyst just said that Expedia stock could surge another 62%.
Is EXPE Stock a Bargain?
On Thursday, February 11, RBC Capital analyst Mark Mahaney reiterated his “Buy” rating on EXPE stock and set a price target of $165.00. (Source: “Expedia Receives a Buy From RBC Capital,” AnalystRatings.com, February 11, 2016.)
Shares of Expedia currently trade at $101.85 per share, so RBC Capital’s price target implies a 62% upside for Expedia.
In a market where many big names are down double-digits, it’s not so easy to make that upward journey. Let’s see how Expedia might be an exception…
Investors are always looking for growth. Fortunately, Expedia is growing at a healthy pace. In the most recent quarter, the company’s gross bookings increased 40% year-over-year. Revenue surged 29% year-over-year despite a five-percentage-point negative impact from foreign exchange. (Source: “Expedia Inc. Reports Fourth Quarter and Full Year 2015 Results,” Expedia Inc, February 10, 2016.)
For full-year 2015, Expedia increased its adjusted EBITDA by 11% to $1.2 billion. Note that the Paris terrorist attacks in November 2015 deterred many travelers. Expedia estimates that the attacks negatively impacted adjusted EBITDA by $10.0 million to $15.0 million.
Going forward, Expedia could grow even faster.
The company made some key acquisitions in 2015, including Travelocity, Orbitz Worldwide, and HomeAway. These acquisitions could start contributing to Expedia’s bottom line as soon as this year.
According to the company’s forward guidance, Orbitz Worldwide and HomeAway are expected to contribute $275 million–$325 million to Expedia’s adjusted EBITDA this year. Thanks to these acquisitions, Expedia expects its full-year 2016 adjusted EBITDA to grow 35%–45% year-over-year. That kind of growth rate should be able to whet investors’ appetites. (Source: “Expedia Inc. Fourth Quarter Investor Presentation,” Expedia Inc, February 10, 2016.)
Some investors have been concerned about the threat of sharing-economy businesses, such as Airbnb. To that, Expedia’s president and CEO, Dara Khosrowshahi, said, “We don’t see significant effect of Airbnb on our business.” Moreover, because of Expedia’s acquisition of vacation rental marketplace HomeAway, Khosrowshahi believes that “the Airbnb effect is going to be a positive factor for us.” (Source: “Expedia Inc. Fourth Quarter Earnings Call Transcript,” Expedia Inc, February 10, 2016.)
The Bottom Line on EXPE Stock
Expedia is a rare find in today’s stock market where valuations have become extremely elevated. There are plenty of stocks with triple-digit price-to-earnings multiples. Some companies have attracted a huge following without even making a single penny in earnings. (I’m looking at you, Tesla fanboy.)
EXPE stock, on the other hand, is quite different. The company is growing at an impressive rate. It has also made several strategic acquisitions to keep that growth sustainable. Meanwhile, the company’s price-to-earnings ratio is at a moderate 16.22.
If you believe in the potential of online travel, you should take a serious look at EXPE stock.