It is very normal for investors to get confused when they wish to invest in a travel and related services company. They can’t make out which company deserves their hard earned money. While there are several players in the market, the primary players in the sector are Priceline Group (PCLN, Financial), Expedia (EXPE, Financial), Orbitz Worldwide (OWW, Financial) and Sabre Corporation (SABR, Financial). Let’s compare these four players to decide which should be a part of an investor’s portfolio. In order to analyse this, we will be evaluating the four companies based on financial ratios, market expectations, analyst opinions, and intrinsic value and margin of safety.
Financials and ratios
From the below table, it’s clear that Priceline Group is the biggest company both in terms of market capitalization and revenue. While other companies are reporting net income in millions, Priceline’s net income is in billions. Not only that, Priceline offers the best earnings per share and its margins are far above competitions. All this come together to suggest how wide its span of operations and volume is when compared to competition.
Source: Yahoo Finance
Next, moving on to financial ratios, Priceline’s P/E is 26.3x whereas the average P/E of its competition is 72.58x – that’s a huge bargain according to me. The company offers better margins, earns higher revenue and posts great EPS. Yet the stock is trading at just 26 times its earnings, making it undervalued compared to peers. Next, a look at ROA and ROE suggests Priceline is great at managing its assets. While others offer ROA near 5%, Priceline’s ROA is 15.17%. Again the highest ROE figure means its generating more and better value for the investors. Coming to the current ratio, the higher the ratio, the more liquid the company is and that’s a good thing. Here also Priceline scores.
Source: Yahoo Finance
Analyst ratings and expectations
Industry experts and analysts are all very optimistic about most of the companies we are analysing today. However, here also Priceline is ahead of its competition. 80% of Yahoo Finance analysts covering the stock have a buy rating - 20% have strong buy rating and 60% have buy rating. The following table clearly shows no other stock has such amount of optimism attached to it.
Source: Yahoo Finance
The following table summarizes the low, mean, median and high targets for each of the stocks. Considering the bull case, where all stocks hit their high target, Expedia will trade at 19.7% over its current price, Orbitz will trade at just 2.5% over its current price, Sabre will trade at 20.2% above, but Priceline stock will trade at 26.3% above its current price – that’s huge upside potential.
Source: Yahoo Finance
Intrinsic value and margin of safety
Finally, let’s talk about intrinsic value and margin of safety. I have been putting a lot of stress on these two lately and many of my recent articles are based on these two. There’s a really good reason for that. A stock is overvalued or undervalued to its competition is a relative concept – that’s valuing one company against another. But, it’s also important to assess the actual worth of a stock and that’s possible by analysing margin of safety which is nothing but the difference between a stock’s market price and its intrinsic value, expressed as a percentage on intrinsic value.
Source: Guru Focus
As per the above calculation, Priceline group is the only company that has a positive margin of safety. Compared to its intrinsic value, the stock is 24% undervalued.
Bottom line
Summing it all up, Priceline offers the best in class margins and returns. The stock is undervalued compared to its competition as well as to its fair value. Being the largest online travel company, Priceline will continue to benefit in years to come as worldwide travel improves on the back of improving economy. Thus, Priceline Group is the way to go and investors should definitely consider it while building their portfolios.
