Pent-up travel demand has been fueling the travel industry’s fast-paced recovery over the past few months. Heightened demand and soaring prices are expected to drive the online travel industry to deliver record profits in the coming months. According to American Airlines CEO Doug Parker, "The demand (for domestic leisure travel) is higher than it's ever been."
Furthermore, domestic flight bookings in March 2022 drove $8.80 billion in online spending, up 28% over 2019. Also, according to Research Dive, the global luxury travel market is estimated to grow exponentially at an 8.8% CAGR from 2021 to 2028. Therefore, fundamentally strong online travel stocks trivago N.V. (TRVG) and Travelzoo (TZOO) are well-positioned to offer solid benefits in the near term.
Nevertheless, lingering inflation and an acute labor shortage are two major factors affecting the travel industry amid worsening logistic disruptions owing to sporadic COVID-19 lockdowns and the continued Russia-Ukraine conflict. So, we think Booking Holdings Inc. (BKNG) and MakeMyTrip Limited (MMYT) are best avoided now because they look significantly overvalued at their current price levels.
Stocks to Buy:
trivago N.V. (TRVG)
Headquartered in Düsseldorf, Germany, TRVG and its subsidiaries operate a hotel and accommodation search platform in the United States, Germany, the United Kingdom, and internationally. It offers an online meta-search for hotels and accommodation through online travel agencies, hotel chains, and independent hotels.
TRVG's total revenue increased 175.9% year-over-year to €89.10 million ($93.96 million) for the fourth quarter, ended Dec. 31, 2021. Its net income came in at €15.20 million ($16.03 million), compared to a €8.60 million ($9.07 million) loss in the previous period. Also, its adjusted EBITDA came in at €19.60 million ($20.67 million) compared to a €3.40 million ($3.59 million) loss in the year-ago period.
TRVG's revenue is expected to increase 62.9% to $640.52 million in 2022. Its EPS is expected to grow 166.7% to $0.08 in 2022. It surpassed EPS estimates in three of the four trailing quarters. Over the past three months, the stock has gained 3.9% in price to close yesterday's trading session at $2.16.
TRVG's POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has an A grade for Growth, Value, and Quality and a B grade for Sentiment. TRVG is ranked #1 of 72 stocks in the Internet industry. Click here to see the additional TRVG ratings for Momentum and Stability.
Note that XXXX is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.
Travelzoo (TZOO)
New York City’s TZOO is an Internet media company that provides travel, entertainment, and local deals from travel and entertainment companies and local businesses in Asia Pacific, Europe, and North America.
On April 26, 2022, Holger Bartel, Global CEO, said, "We see continued improvement in our business. We seize the exceptional industry opportunities by providing 30 million Travelzoo members exclusive and irresistible travel, entertainment, and local offers and experiences. Travelzoo members are affluent, active, and open to new experiences. 84% say Travelzoo influences their travel destinations because they trust Travelzoo."
TZOO's revenues increased 29.2% year-over-year to $18.45 million for its fiscal 2022 first quarter, ended March 31, 2022. Its net income came in at $2.36 million, compared to a $1.69 million loss in the prior-year period. Furthermore, its EPS came in at $0.19, compared to a $0.14 loss per share in the year-ago period.
Analysts expect TZOO's revenue to increase 23.3% year-over-year to $77.90 million in 2022. Its EPS is expected to grow 600% to $0.63 in 2022. Over the past month, the stock gained 10.2% in price to close yesterday's trading session at $6.81.
TZOO has an overall B rating, which equates to a Buy in our proprietary rating system. It has an A grade for Sentiment and Quality. TZOO is ranked #3 in the Internet industry. Click here to see the additional POWR Ratings for TZOO (Growth, Value, Momentum, and Stability).
Stocks to avoid:
Booking Holdings Inc. (BKNG)
BKNG provides travel and restaurant online reservation and related services worldwide. The Norwalk, Conn., company operates Booking.com; Rentalcars.com; and Priceline. It also operates Agoda, which provides online accommodation reservation services.
BKNG's total revenues for the fourth quarter (ended Dec. 31, 2021) came in at $2.98 billion, up 140.8% year-over-year. However, its total operating expenses was $2.13 billion, up 53.3% year-over-year. Its short-term debt came in at $1.99 billion for the period ended Dec. 31, 2021, compared to $985 million for the period ended Dec. 31, 2020. In addition, its total liabilities came in at $17.46 billion compared to $16.98 billion for the same period.
In terms of forward EV/S, BKNG's 5.31x is 368.8% higher than the 1.13x industry average. Its 5.72x forward P/S is also higher than the 0.96x industry average.
The stock has declined 4.6% in price over the past six months to close yesterday's session at $2,317.80.
BKNG's POWR Ratings reflect its poor prospects. It has a D grade for Value and Stability. Click here to access the additional POWR Ratings for BKNG (Growth, Momentum, Sentiment, and Quality). BKNG is ranked #23 in the Internet industry.
MakeMyTrip Limited (MMYT)
Based in Gurugram, India, MMYT, an online travel company, sells travel products and solutions in India, the United States, Singapore, Malaysia, Thailand, the United Arab Emirates, Peru, Colombia, and Indonesia. The company operates through three segments: Air Ticketing; Hotels and Packages; and Bus Ticketing.
MMYT's total revenue came in at $115.02 million for its fiscal year 2022 third quarter, ended Dec. 31, 2021, up 102.5% year-over-year. However, its loss for the period was $9.04 million, compared to a $3.50 million loss in the prior-year period. The company's loss per share was $0.08, versus a $0.03 loss per share in the year-ago period. Also, its cash and cash equivalents came in at $178.37 million for the period ended Dec. 31, 2021, compared to $295.07 million for the period ended March 31, 2021.
MMYT's 7.15x forward EV/S is 531.7% higher than the 1.13x industry average Its 7.93x forward P/S is also higher than the 0.96x industry average.
MMYT's EPS is expected to remain negative in 2022. Over the past six months, it has declined 25.8% in price to close yesterday's session at $25.67.
MMYT's POWR Ratings are consistent with this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. In addition, the stock has an F grade for Value and a D grade for Sentiment, Stability, and Quality.
We also have graded MMYT for Growth and Momentum. Click here to access all MMYT's ratings. It is ranked #67 in the Internet industry.
TRVG shares were trading at $2.17 per share on Friday afternoon, up $0.01 (+0.46%). Year-to-date, TRVG has declined -0.46%, versus a -11.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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