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Profitable first quarter, weaker long-term trends

Orbitz Worldwide, Inc. (NYSE:OWW) posted a great first quarter 2013, with $1.34 in EPS (as compared to -$.06 for first quarter 2012). Net revenue grew 7% compared to first quarter 2012. Management is pushing the Orbitz Rewards program, which the company anticipates will drive customer loyalty and help Orbitz build a solid base of repeat clients. Orbitz is also focusing on mobile, and it shows – over 25% of their bookings are now done through mobile devices.

Unfortunately, this great earnings report contrasts pretty sharply with the company’s historical profitability – particularly the negative EPS for the past five years. Even earnings before interest, taxes, depreciation, and amortization (EBITDA) has been positive only for two of the past five years (2010-2011), and by little enough that just adding back interest expenses ($44 million and $40 million, respectively) alone reduced earnings to almost zero. At a forward P/E of 16.7, per Morningstar, the stock is comparatively cheap – but that’s because there is a lot of built-in uncertainty. I’m a pretty conservative investor by nature, so I would stay away for now. Wait to see if management has actually turned things around or if this quarter was a fluke before jumping in.

Foolish conclusion Inc (NASDAQ:PCLN) is far and away your best bet. The company has been growing margins consistently since 2003. Expedia Inc (NASDAQ:EXPE) and Orbitz Worldwide, Inc. (NYSE:OWW) are expanding, but their income statements don’t justify investment to my mind. As the global economic recovery chugs along, all three of these companies could easily be lifted with the tide, but it’s far better to invest in the company that grew earnings even during the global recession of 2008-2010. That’s Priceline.

Michael Douglass owns shares of The Motley Fool recommends The Motley Fool owns shares of

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