"Travel agent" hasn't yet joined the list of jobs that have
faded into memory, such as "carriage operator" and "gas station
attendant." The stunning success of the companies that offer
flights, hotel reservations and rental cars suggest that day may
not be far off, though.
3 Best Airline Stocks to Buy Now
Despite lofty gains in some of these stocks, it's not too late
to cash in on this relatively young sector's growth. We're
especially keen on Priceline Group (
), owner of Priceline.com, and Expedia (
). Two other companies -- Orbitz Worldwide (
) and TripAdvisor (
) -- should also benefit from the online travel trend, but we urge
more caution with their shares.
Online travel bookings in the U.S. grew by 37% from 2009 to
2013, according to research firm Euromonitor International, but the
majority of the world's travel bookings are still done offline.
Expedia and Priceline, despite being the world's two biggest online
travel agencies, combine for less than 10% of global bookings, says
Morningstar analyst Adam Fleck.
Priceline raised eyebrows in September 2013 when the price of
its stock crossed the $1,000 mark. Proving that a high price alone
doesn't necessarily make a stock expensive, Priceline shares have
since gained 26%, to $1,260.77, on the strength of continued
international growth (share prices are as of the August 27
Priceline is best known in the U.S. for its "Name Your Own
Price" bidding service and its commercials with Star Trek's
original Captain Kirk, William Shatner. The key to Priceline's
success, however, was the astute purchase in 2005 of Bookings B.V.,
whose Booking.com has become Europe's leading hotel-reservation
site. Fleck says Booking.com has more than 430,000 global
properties in its network, including 200,000 in Europe.
As more hotels list rooms, more consumers will seek out
Booking.com, making it appealing to even more hotels. This is a
powerful "network effect" that grows stronger over time, Fleck
wrote recently. He says Priceline also has a strong presence in
several emerging nations.
Analyst Mark Mahaney, of RBC Capital Markets, calls Priceline
"one of the best growth stocks in the Internet sector." He believes
Priceline is gaining market share in "practically every market" it
operates in. He considers the 29% growth in Priceline's hotel room
bookings in the second quarter particularly impressive because its
hotel business is twice the size of Expedia's. Mahaney says "the
large numbers law" will inevitably slow Priceline's growth, but "it
hasn't really yet." (Signaling a desire to grow in new ways,
Priceline bought restaurant-reservation service OpenTable for more
than $2 billion in July.) Mahaney rates the stock a buy and expects
it to reach $1,500 in a year, which is 22 times his forecast for
the company's 2015 earnings.
Expedia is the dominant online player in the U.S. The owner of
Hotels.com and Hotwire, it produces 3.5 times the U.S. sales that
Priceline does. Analysts had high expectations for Expedia's
second-quarter results, and they smashed through them. Expedia
reported a 24% increase in revenue from the same period in 2013, a
33% gain in net income and widening profit margins.
Investors have warmed to the Expedia story: The stock, at
$86.50, has soared 86% over the past year and now trades at 21
times estimated year-ahead earnings, just a drop below Priceline's
price-earnings ratio of 22. That has prompted some analysts to
suggest that Expedia's gains over the next 12 months may be
limited, even if the long-term future is bright "We think that as
the multidecade trend toward booking travel online continues,
Expedia will continue to capture market share," says Fleck, adding
that he expects continued double-digit revenue and profit growth.
He estimates the stock's fair value at $94, 9% above the current
price. Investors think the third of the U.S.-based online travel
sites, Orbitz, will benefit as well. Its stock, currently $8.12,
has more than tripled since November and now trades at 20 times
estimated earnings over the next 12 months. That's not much lower
than Priceline's and Expedia's P/Es, even though Orbitz is expected
to deliver much smaller earnings growth over the next few
Orbitz was started by several major airlines and initially
focused on air travel rather than more-profitable hotel
reservations. Its dependence on airlines was underscored on August
26 when Orbitz shares dropped almost 5% on news that American
Airlines pulled its flights from the site in a dispute over
The company is trying to catch up to Priceline and Expedia, but
RBC's Mahaney says Orbitz's smaller size puts it in "a challenging
Expedia spun off TripAdvisor in December 2011. Since then,
TripAdvisor's shares have more-than tripled, to $101.78.
TripAdvisor focuses on publishing user reviews of hotels,
restaurants and attractions across the globe. The site's users can
then book rooms or flights through links to Expedia, Priceline and
other travel sites, which pay TripAdvisor based on user clicks.
Analysts forecast earnings-per-share growth for TripAdvisor of
26% this year and 32% in 2015. That tops forecasts for Priceline
(26% and 24%) and Expedia (23% and 18%). Investors must pay up for
that edge, however, as TripAdvisor shares trade at 41 times
estimated year-ahead earnings, roughly twice the P/E of Priceline,
Expedia and Orbitz. TripAdvisor's projected growth is impressive,
but its rich valuation makes it perhaps the riskiest of the online