Tripadvisor Inc: A Great Stock With Strong Upside Potential

Tripadvisor Inc: A Great Stock With Strong Upside PotentialTripadvisor Stock a High-Reward Play on the Economic Reopening

The COVID-19 pandemic has affected more than 10 million Americans and 50 million people worldwide, but as vaccines surface, stocks will jump. That happened on November 9, when Pfizer Inc. (NYSE:PFE) announced that it has developed a promising vaccine.

In my view, the battered travel segment is one of the top areas to play the vaccine and economic reopening. In that segment, Internet travel operators could benefit the most.

A favorite stock in the travel sector is Tripadvisor Inc (NASDAQ:TRIP). Prior to the pandemic, the company was growing and turning into a top-tier online travel company.

Tripadvisor provides in-depth travel information and services to hundreds of millions of users each month in markets worldwide.

Advertisement

TRIP stock was trading at $31.67 in January, prior to falling to $13.73 during the March sell-off.

Shares of Tripadvisor Inc have recovered by 80% from their low, but they remain well below their December 2015 high of $77.81 and their June 2014 high of $98.92.

Chart courtesy of StockCharts.com

There’s no guarantee that Tripadvisor stock will reach its previous highs anytime soon, but considering its current lower price, I believe there’s a bull case for Tripadvisor shares to rally as the economy, including the travel industry, move back to normalcy.

Steady Reopening of Economy Will Boost TRIP Stock

A look at Tripadvisor’s five-year revenue history finds relatively flat results, as the below table shows.

Fiscal Year Revenues (Billions) Growth
2015 $1.49 N/A
2016 $1.48 -0.8%
2017 $1.56 5.1%
2018 $1.62 3.8%
2019 $1.56 -3.4%

(Source: “TripAdvisor Inc.MarketWatch, last accessed November 18, 2020.)

The impact of the pandemic on revenues will be significant. The company’s revenues are expected to drop by 61.5% to $600.3 million this year but recover by 60.2% to $961.6 million in 2021. (Source: “TripAdvisor, Inc. (TRIP),” Yahoo! Finance, last accessed November 18, 2020.)

Prior to the pandemic, TripAdvisor was consistently delivering positive earnings before interest, taxes, depreciation, and amortization (EBITDA). The EBITDA growth rate superseded the revenue growth in 2018 and 2019.

Fiscal Year EBITDA (Millions) Growth
2015 $326.0 N/A
2016 $268.0 -17.8%
2017 $235.0 -12.3%
2018 $299.0 27.2%
2019 $313.0 4.7%

(Source: MarketWatch, op. cit.)

In terms of the the bottom line, TRIP has largely been profitable on both a generally accepted accounting principles (GAAP) and adjusted basis.

In 2019, TripAdvisor Inc delivered its best GAAP earnings per share (EPS) since 2015 and appeared on its way to stronger results before COVID-19 surfaced.

Fiscal Year GAAP Diluted EPS Growth
2015 $1.36 N/A
2016 $0.82 39.8%
2017 -$0.14 -116.6%
2018 $0.81 696.5%
2019 $0.90 11.0%

(Source: MarketWatch, op. cit.)

Looking at the profits after adjusting for one-time items, TripAdvisor earned $1.77 per diluted share in 2019, but this is expected to plummet to a loss of $0.97 per diluted share this year.

The company’s earnings outlook is uncertain, given the pandemic. For 2021, there’s a consensus estimate of $0.48 per diluted share, a high estimate of $1.02 per diluted share, and a low estimate of a loss of $0.04 per diluted share. (Source: Yahoo! Finance, op. cit.)

TripAdvisor Inc has consistently generated positive free cash flow, with high readings in 2018 and 2019, prior to the pandemic.

Fiscal Year Free Cash Flow  (Millions) Growth
2015 $273.0 N/A
2016 $249.0 -8.8%
2017 $174.0 -30.1%
2018 $344.0 97.7%
2019 $341.0 -0.9%

(Source: MarketWatch, op. cit.)

As the company works on moving back to normalcy, its financial risk is manageable. At the end of September, TripAdvisor Inc had $517.0 million in debt and $446.0 million in cash.

Analyst Take

Institutional investors like TripAdvisor stock, despite some recent selling. At this time, 398 institutions hold 82.9% of the outstanding shares. (Source: Yahoo! Finance, op. cit.)

TRIP stock has also attracting insider buying on the price weakness. Over the last six months, insiders added 108,474 shares in 13 transactions and sold 47,009 shares. (Source: Yahoo! Finance, op. cit.)

My view is that TRIP stock will rally as the economy reopens and a COVID-19 vaccine becomes available. We got a sense of how strong the stock buying can be when Pfizer announced its vaccine, so it makes sense to begin to look at shares of TripAdvisor Inc at the current multi-year low levels.