Expedia Group Inc (EXPE, Financial) showed a gain of 4.58% in its stock value, with an Earnings Per Share (EPS) of 5.68 on August 06, 2023. However, is this stock a potential value trap that investors should think twice about? This article aims to answer that question by providing a comprehensive valuation analysis. Read on to get a deeper understanding of Expedia Group's financial standing.
Company Overview
Expedia Group Inc is the world's second-largest online travel agency by bookings. The company's services include lodging, air tickets, rental cars, cruises, in-destination, and other services, as well as advertising revenue. Expedia operates several branded travel booking sites and has also expanded into travel media.
At its current price of $103.19 per share, Expedia Group Inc has a market cap of $14.8 billion. The company's fair value, according to the GF Value, is $179.79. This discrepancy between the stock price and the GF Value hints at a possible value trap, urging investors to proceed with caution.
Understanding GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock. It factors in historical trading multiples, a GuruFocus adjustment based on past performance and growth, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on this analysis, Expedia Group Inc appears to be a potential value trap at its current price. The company's market cap stands at $14.8 billion, suggesting investors should think twice before investing.
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Financial Strength
Investing in companies with low financial strength could lead to permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Expedia Group has a cash-to-debt ratio of 0.91, ranking better than 59.98% of companies in the Travel & Leisure industry. Based on this, GuruFocus ranks Expedia Group's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Expedia Group has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $12.3 billion and an Earnings Per Share (EPS) of $5.68. Its operating margin is 9.82%, which ranks better than 61.27% of companies in the Travel & Leisure industry. Overall, the profitability of Expedia Group is ranked 6 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Expedia Group is -3.6%, which ranks worse than 53.73% of companies in the Travel & Leisure industry. The 3-year average EBITDA growth is -7.1%, which ranks worse than 66.17% of companies in the Travel & Leisure industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. During the past 12 months, Expedia Group's ROIC was 2.56 while its WACC came in at 8.75.
Is Expedia Group a Value Trap?
Despite signs of undervaluation, Expedia Group's financial health is in the distress zone, with an Altman Z-score of 0.8, signalling an increased bankruptcy risk. An Altman Z-score above 2.99 typically indicates a safer financial position. The Z-score, particularly relevant for manufacturing companies, considers various factors such as profitability, leverage, liquidity, solvency, and activity ratios. To further comprehend the Z-score's role in assessing a company's financial risk, please click here.
Conclusion
In summary, Expedia Group (EXPE, Financial) appears to be a potential value trap. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 66.17% of companies in the Travel & Leisure industry. To learn more about Expedia Group stock, you can check out its 30-Year Financials here.
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