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How Does TripAdvisor’s Valuation Compare to Peers?

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Forward PE ratio

Previously in this series, we discussed TripAdvisor’s (TRIP) 3Q15 results, which the company released on November 5, 2015. We also looked at how analysts changed their estimates after the release. In this final part of our series, we’ll look at the company’s valuation compared to its peers.

We’ll use the forward PE (price-to-earnings) and forward EV/EBITDA multiple to gauge TRIP’s valuation. A forward PE ratio is calculated by dividing the company’s current stock price by the earnings estimate for the next 12 months.

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TripAdvisor versus peers

As of November 6, 2015, TRIP’s forward PE ratio stood at 34x, which is in between its all-time high of 50.69x from July 2014 and its all-time low from 17.44x in October 2012. Below are a few noteworthy comparisons:

  • TripAdvisor enjoys a multiple significantly higher than peers Expedia (EXPE) and Priceline (PCLN), which signifies its higher growth potential as compared to the other two players.
  • TRIP’s instant booking platform is expected to be crucial for future growth, as it will help TRIP better capitalize on consumers’ increasing reliance on mobile and wearable devices.
  • EXPE’s PE ratio is higher than that of its closest peer, Priceline (PCLN), whose stock was valued at a forward PE multiple of 21.8x during the corresponding period.
  • Expedia had a forward PE multiple of 34.5x during the same period.

But while PE ratio is used widely because of its simplicity, the measurement has some disadvantages. For example, earnings can be easily manipulated, thus making the PE ratio meaningless. We’ll thus compare these companies on a forward EV-EBITDA (enterprise value to earnings before interest, taxes, depreciation, and amortization) multiple.

Forward EV-EBITDA ratio

As of November 6, 2015, TRIP had a forward EV-EBITDA ratio of 19.6x, which was closer to its average of 19.4x. This multiple is higher than both Expedia’s forward EV-EBITDA multiple of 13x and Priceline’s multiple of 17x during the same period.

TRIP makes up 1.8% of the NASDAQ-100 Ex-Technology Sector Index (QQXT). E-commerce player Amazon (AMZN) forms the largest holding of 1.9%.

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