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Should TripAdvisor Investors Pack Their Bags Based on TRIP’s Valuation?

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Forward PE ratio

As of Aug 4, 2016, TripAdvisor’s (TRIP) forward PE (price-to-earnings) ratio stood at 34.3x, which is midway between its all-time high of ~50.7x in July 2014 and its all-time low of ~17.4x in October 2012. Below are a few noteworthy comparisons:

  • TripAdvisor’s valuation multiple is significantly higher than that of Expedia (EXPE) and Priceline (PCLN). Ctrip.com (CTRP) is also an indirect rival.
  • TRIP’s Instant Booking platform is expected to be crucial for future growth because 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 19x during the corresponding period.
  • Expedia had a forward PE multiple of 19.8x during the same period.
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But while PE ratio is used widely due to 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-to-EBITDA ratio

As of Aug 4, 2016, TRIP had a forward EV-to-EBITDA ratio of 17.9x—lower than its average of 18.6x. This multiple is higher than both Expedia’s forward EV-to-EBITDA multiple of 10.3x and Priceline’s multiple of 14.5x during the same period.

What should investors watch?

TripAdvisor’s success depends on the success of its Instant Booking platform as TRIP continues to invest heavily in the platform. Some key metrics to track are revenue-per-shopper growth, EBITDA margin, and instant booking monetization rates.

On a macro level, factors such as terrorist threats, geopolitical risks, and economic obstacles could keep the travel scenario dull across the globe, and this could mean further struggles for TripAdvisor.

Notably, TRIP makes up 1.6% of the NASDAQ-100 Ex-Technology Sector Index (QQXT).

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