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What Investors Are Willing to Pay for Expedia

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Current valuation

Expedia (EXPE) currently trades at a forward PE multiple of 22.5x. This multiple is significantly higher than its average valuation multiple of 14.8x since November 2008. It’s also higher than rival Priceline’s (PCLN) forward PE multiple of 25.4x, TripAdvisor’s (TRIP) 33.9x, and Ctrip’s (CTRP) 87.9x. However, players like TripAdvisor (TRIP) and Ctrip.com (CTRP) aren’t strictly comparable.

The market is expecting EXPE’s earnings per share or EPS to grow 21% in 2017. Rival Priceline’s EPS is expected to grow at a much slower rate of 11% in 2017. As you can see from the chart above, EXPE has mostly traded below Priceline (PCLN) since 2008.

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Our analysis

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—both domestic and global—should be the biggest driving factor for Expedia. It could translate to higher disposable income, leading to increased travel demand in the long term. This would, in turn, drive growth for online travel agencies. Lower air fares could be another positive for the industry.

However, increasing competition should keep Expedia’s growth in check. Plus, anti-travel policies from President Donald Trump (like the recent travel ban) will add to the uncertainty. Investors should also keep an eye on EXPE’s increasing leverage, as increasing leverage will make the stock more volatile.

EXPE forms ~1.6% of the holdings of the First Trust NASDAQ-100 Ex-Technology Sector ETF (QQXT).

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