Priceline.com Inc (PCLN), Expedia Inc (EXPE): Which Travel Company Should You Invest In?

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 IncPriceline.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.

The company is growing at about 20% year-over-year yet has seen four consecutive years of margin declines. Last quarter margins did expand some, but with online advertising rates continuing to fall, I am not sure that it’s sustainable. In terms of valuation, the stock trade at 9 times sales, making it very expensive. Like I said, the stock often gets compared to the three above, but is very different in nature, and is also more expensive with more questions regarding its future performance.

Conclusion

Throughout my book, Taking Charge With Value Investing (McGraw-Hill, 2013), I try to stress the importance of unmeasured fundamentals, one being the comparison of companies in various industries. You can often search, compare, and then find value by seeing how companies stack up side-by-side.

In the online travel space, I think Priceline is a safe investment that is cheaper than many online based companies. Yet Expedia looks to be the clear value when stacked up side-by-side, with solid growth, room for margin improvement, and a large global world to expand its business. Orbitz is cheap, with a similar business model, and TripAdvisor is expensive, with a different business model. With that said, before making your next investment, in any industry, try comparing the simple metrics of those in the space. I think you’ll be surprised at the distinction in value that you will find.

The article Which Travel Company Should You Invest In? originally appeared on Fool.com is written by Brian Nichols.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!