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

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

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!