Expedia’s Valuation: What’s Priced In?
Currently, Expedia (EXPE) trades at a forward PE (price-to-earnings) multiple of 29.3x—significantly higher than its average valuation multiple of 15.4x since November 2008. It’s also higher than Priceline’s (PCLN) forward PE multiple of 24.8x. TripAdvisor (TRIP) is trading at a forward PE multiple of 37.3x, while Ctrip.com (CTRP) is trading at a forward PE multiple of 56x. However, players like TripAdvisor and Ctrip.com aren’t strictly comparable.
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The market expects Expedia’s EPS (earnings per share) to rise 12.8% YoY (year-over-year) in 2017. Priceline’s EPS is expected to grow at a slightly higher rate of 13.8% YoY in 2017. As you can see in the above chart, Expedia has mainly traded below Priceline since 2008.
Valuation multiples help us understand the market’s perception of risk, growth, and investors’ willingness to pay. Investors seem to be optimistic about Expedia’s future growth.
Economic growth, domestic and global, will be the biggest driving factor for Expedia. Economic growth will translate to higher disposable income and increased travel demand in the long term. It will drive online travel agencies’ growth. Lower air fares will be another positive for the industry.
However, increasing competition will keep Expedia’s growth in check. The top executive changes might impact the valuation if there’s a change in the company’s strategy. Investors should also keep an eye on Expedia’s increasing leverage. As the leverage increases, the stock will be more volatile.
Investors can gain exposure to Expedia by investing in the PowerShares DWA Consumer Cyclicals Momentum Portfolio (PEZ), which holds 3.2% of its portfolio in Expedia.