Novice Investing - Travelling with Expedia

Date: Friday 29th 2008f August 2008 09:40:29 PM

Travelling with Expedia - 05/24/2006

By: Novice Investing Staff

You see, not only can you find bargains at Expedia Inc. (EXPE) travel site, but the stock itself might be a bargain. This is the company that was acquired by IAC Interactive (IACI) and then later spinned off as separate entity once again. The stock has sold off more than 30% after it reported ugly quarterly earning some time ago. The question that turnaround investors ask is this: Is Expedia a worthy investment candidate at $ 13 and change?

For the latest quarter, while gross booking rose 14% overall, revenue sank 7% as revenue per ticket decrease 9%. As a result, quarterly profit fell to $ 57 Million or 15 cents per share, versus 22 cents expectation. Meanwhile, Yahoo! Finance expects profit expectation for the year at $ 1.10, which is getting harder to achieve. While Expedia probably earns most of its revenue during the summer season, the rest of the quarter, it made less than stellar earning. If things don't improve, or get worse, you can subtract the 7 cents that Expedia miss each quarter. That implies that for the year 2006, earning will came in merely at $ 0.82.

As you recall, for companies with 0% earning growth, the fair value is when the stock is trading at a P/E of 13.6. Expedia has a positive net cash of less than 50 cents per share. With expected EPS of $ 0.82, Expedia has a fair value of $ 11.15 per share. Thus, while $ 13 looks cheap, it is not. It is trading similar to Priceline Inc. (PCLN) at about 16 times earnings. Meanwhile, Priceline is 4 times smaller than Expedia, in terms of market cap.

For a play in the travel sector, you might want to consider the well-diversified Cendant Corp. (CD), which is trading at around 12.5 times earnings. However, Cendant is quite highly leveraged with $ 13.5 Billion of long term debt.

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Cendant Corp. (CD) or any other securities.

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