Jim Cramer gave a boost to travel stocks on his nightly show “Mad Money” earlier this week. The TV personality predicts a rally, pointing to the technicals but also the fundamentals as the cause, calling Priceline “by far his favorite.” Therefore, let’s assess some of the moves on Wednesday.
Priceline.com Inc (NASDAQ:PCLN)
Priceline.com Inc (NASDAQ:PCLN) is without question the clear leader of the pack, and its recent acquisition of Kayak is gaining the company a lot of buzz, due to the mobile exposure. On Wednesday it rallied 3.28%, giving it a near 16% return for the new year.
The Kayak acquisition could open up a world of opportunity, but at this point it is yet to be seen. The company does have incredible metrics, with an operating margin of 35.16% and a return on equity of over 40%. Unlike most internet based companies, Priceline.com Inc (NASDAQ:PCLN) actually trades with a PEG ratio below 1.00, indicating value. However, since Priceline.com Inc (NASDAQ:PCLN) is the largest and the clear leader in the space, with 20% growth year-over-year, we should first compare smaller companies to fully understand Priceline’s value or lack thereof.
Expedia Inc (NASDAQ:EXPE)
Expedia Inc (NASDAQ:EXPE) operates a business much like Priceline’s, although smaller without the large global presence. In terms of market capitalization, Priceline is four times greater than Expedia Inc (NASDAQ:EXPE), yet is only 30% larger in operations. Both companies have near equal growth, yet Priceline boasts the more efficient business, as Expedia’s operating margins are just 13.57% and it returns only one-third as much on its equity compared to Priceline.
Priceline’s larger valuation has been rewarded moreso based on efficiency in the space. However, with Expedia Inc (NASDAQ:EXPE)’s price/sales ratio of 2.10, compared to Priceline’s over 6.0, I believe that Expedia Inc (NASDAQ:EXPE) has more room for improvement, and would make the better long-term value investment, assuming margin and global expansion.
Orbitz Worldwide, Inc. (NYSE:OWW)
Orbitz Worldwide, Inc. (NYSE:OWW) has the same business model as both Expedia and Priceline, but is much smaller. Orbitz rallied 8.23% on Wednesday, adding to its market-best 156% YTD gains. The stock has been upgraded religiously throughout the year, but all of its gains have been consistent and steady.
While the company’s top-line growth is only in the mid-single digits, its value is second-to-none. The company trades with a price/sales ratio of only 0.87 and has operating margins of 7.15%. However, I do worry about its PEG ratio of 2.32, indicating that margins may not improve or that sales could fall. Overall, because of its low valuation to sales, I think it is more attractive than Priceline, but that because of Expedia’s efficiency and its room to grow, I think Expedia is still the best choice.
Tripadvisor Inc (NASDAQ:TRIP)
Tripadvisor Inc (NASDAQ:TRIP) rallied 3.69% on Wednesday giving it a YTD gain of almost 20%. It is often compared to the companies above, however it is actually quite different. While you can plan trips on TripAdvisor, it has become almost a mix between Yelp and Expedia. The company is more known for being on the opinions side of the online travel business, making the majority of its revenue from advertisements.