Combine the volatility of the internet with the economic sensitivity of the travel sector and you create a group of stocks that could take you on a wild trip.
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If the performance of the online travel companies is any indication, a double-dip recession is not in the cards. One of the largest such company in the world, Priceline.com (Nasdaq:PCLN) is up 50% year-to-date and sitting at a 10-year high. Even with the rally in 2010, the company trades at a reasonable forward P/E ratio of 22. However, with a price-to-sales figure of 6.5, there is a case for the stock being fully valued, especially considering the 85% rally from the low in early July.
One of its direct competitors is Expedia (Nasdaq:EXPE), a company that is about half the size of PCLN. EXPE trades with a price-to-sales of 2.5 and a forward P/E ratio of only 13.5. Year-to-date, EXPE stock is flat, however the bullish action has picked up dramatically from the July low. Based on pure fundamentals EXPE is the better choice today, but the technicals favor PCLN on a pullback to the $300/share area.
Ctrip.com (Nasdaq:CTRP) provides travel services in the country of China through hotel and air reservations. The company has a market capitalization of $11.5 billion. The stock hit an all-time high in June and has since pulled back and rallied close to the record once again. From a valuation viewpoint, the stock has a forward P/E ratio of 28 and trades at a price-to-sales of 9. The numbers are clearly high when compared to their U.S.-based competitors.
The other China play is eLong (Nasdaq:LONG), a much smaller company with a market capitalization of only $415 million. The company was founded in the same year as CTRP (1999), but the clear leader in the industry is CTRP. With a forward P/E ratio of 58, LONG is not a buy at this time even though it recently hit a new five-year high.
India's Newest Entry
It is now time for India to enter the online travel market with MakeMyTrip Limited (Nasdaq:MMYT), an IPO that began trading in the U.S. in August. The stock closed its first session at $26.45 and within a month the stock was above $38. From a valuation perspective the stock trades with a price-to-sales ratio of 13.5, which is not very attractive. Technically, the stock has been very strong, but it may be ahead of itself and needs a pullback to generate a buy signal. The upside for India's largest online travel company is huge considering India's internet penetration is only 7% versus 74% in the United States.
Economic Rebound Trade
If the global economic rebound continues the online travel stocks should continue their current uptrend. The biggest risk would be a double-dip recession that brings travel to a standstill. My opinion is that the trend continues after a much-needed pullback. (To learn more, check out Travel By Buying Power.)
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