If I told you that a company beat earnings estimates by 20%, posted revenue growth of 58% and raised forward guidance above consensus, would you be surprised if its stock plunged 34%? questions Adam Johnson, editor of Bullseye Brief.
Exactly, me too. But illogical selloffs enable thoughtful investors to buy excellent companies at compelling prices. In time, our patience and persistence will be rewarded.
Expedia, Inc. (EXPE) is the largest US online travel agency/aggregator, generating over $100B in annual bookings through fourteen platforms which include Hotels.com, Orbitz, VRBO and namesake Expedia among others. Revenue is on track hit a new all-time high this year as consumers flush with cash appear ready to spend record amounts on travel and leisure.
Critically, average daily room rates at US hotels are already 5% higher than before Covid, and air traffic is nearly back to pre-Covid levels. While Expedia’s promotional spending has been higher than in the past, trends are beginning to normalize and management has recently increased profitability metrics… in addition to record forecasting top line growth.
At just 16 times earnings, Expedia trades cheaper than the S&P 500 Index, with 3-4 times the growth. Expedia represents a compelling opportunity in an irrational stock market.
My target of $265 reflects what I believe is a very conservative and achievable goal, especially since the stock currently trades at an historically cheap valuation of 16 times earnings.
For my base case, I apply the pre-Covid 10-yr average P/E multiple of 21x to 2024 consensus estimates of $12.13, deriving an implied price target of $255 (60% probability). I then calculate a bull case weighted at 35% which reflects a peer P/E multiple of 24x, and a bear case weighted at 5% which assumes growth is half current estimate. Averaging these scenarios yields a price target of $265.
